A stability analysis of the perfect foresight map in nonlinear models of monetary dynamics

We undertake an analysis of the dynamic behaviour of a discrete time nonlinear monetary dynamics model under perfect foresight expectations. The model derives its interest from the fact that it is a basic mechanism in a broad class of descriptive macrodynamic models. Our analysis makes transparent the multivalued nature of the nonlinear perfect foresight map governing price dynamics. This results in a number of possible discontinuous maps, all of whose dynamics we analyze in response to an unanticipated monetary shock.