Exogenous assumptions with regard to the interest rate path - such as assuming constant interest rates - typically lead to instabilities or indeterminacy.16 At the same time, bringing exogenous assumptions on the interest rate policy into line with the expectations of economic agents underlying these forecasts in a credible and convincing way constitutes a considerable challenge in practice.
The aforementioned simulation of alternative interest rate paths is thus barely practicable. An alternative to this would be to use market interest rates, as opposed to a fixed interest rate.