Generalizing the Taylor Principle: New Comment
AbstractIn this paper, we provide determinacy conditions, i.e. conditions ensuring the existence and uniqueness of a bounded solution, in a purely forward-looking linear Markov switching rational expectations model. We thus settle the debate between Davig and Leeper (2007) and Farmer et al. (2010). The conditions derived by the former are valid in a subset of bounded solutions only depending on a finite number of past regimes, that we call Markovian. However, in the complete bounded solution space, the new determinacy conditions we derive are tighter. Nevertheless, when unique, the solution coincides with the Markovian solution of Davig and Leeper (2007). We finally illustrate our results in the standard new-Keynesian model studied by Davig and Leeper (2007) and Farmer et al. (2010).
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Bibliographic InfoPaper provided by Banque de France in its series Working papers with number 403.
Length: 25 pages
Date of creation: 2012
Date of revision:
Markov switching; DSGE; indeterminacy.;
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-11 (All new papers)
- NEP-DGE-2012-11-11 (Dynamic General Equilibrium)
- NEP-MAC-2012-11-11 (Macroeconomics)
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- Barthélemy, J. & Marx, M., 2011.
"State-Dependent Probability Distributions in Non Linear Rational Expectations Models,"
347, Banque de France.
- Magali Marx & Jean Barthelemy, 2013. "State-Dependent Probability Distributions in Non Linear Rational Expectations Models," 2013 Meeting Papers 576, Society for Economic Dynamics.
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