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Generalizing the Taylor Principle: New Comment

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  • Barthélemy, J.
  • Marx, M.

Abstract

In 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).

Suggested Citation

  • Barthélemy, J. & Marx, M., 2012. "Generalizing the Taylor Principle: New Comment," Working papers 403, Banque de France.
    • Handle: RePEc:bfr:banfra:403
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    Cited by:

    1. Jean Barthélemy & Magali Marx, 2011. "State-Dependent Probability Distributions in Non Linear Rational Expectations Models," Sciences Po publications 347, Sciences Po.
    2. Barthélemy, Jean & Marx, Magali, 2017. "Solving endogenous regime switching models," Journal of Economic Dynamics and Control, Elsevier, vol. 77(C), pages 1-25.
    3. Jean Barthélemy & Magali Marx, 2012. "Generalizing the Taylor Principle: New Comment," SciencePo Working papers Main hal-03461113, HAL.
    4. Shayan Zakipour-Saber, 2019. "Monetary policy regimes and inflation persistence in the United Kingdom," Working Papers 895, Queen Mary University of London, School of Economics and Finance.
    5. repec:hal:spmain:info:hdl:2441/7l23tbn4rd9539sljmp8of2hcb is not listed on IDEAS
    6. Jean Barthélemy & Magali Marx, 2012. "Generalizing the Taylor Principle: New Comment," SciencePo Working papers hal-03461113, HAL.
    7. Richter Alexander W. & Throckmorton Nathaniel A., 2015. "The zero lower bound: frequency, duration, and numerical convergence," The B.E. Journal of Macroeconomics, De Gruyter, vol. 15(1), pages 1-26, January.
    8. Shayan Zakipour-Saber, 2019. "State-dependent Monetary Policy Regimes," Working Papers 882, Queen Mary University of London, School of Economics and Finance.
    9. repec:hal:spmain:info:hdl:2441/3bvs8clr5k9dqqcbq7j5ul2o65 is not listed on IDEAS
    10. repec:hal:spmain:info:hdl:2441/644vfdaim38frrvbit4u0bh0ha is not listed on IDEAS
    11. Roulleau-Pasdeloup, Jordan, 2020. "Optimal monetary policy and determinacy under active/passive regimes," European Economic Review, Elsevier, vol. 130(C).

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    More about this item

    Keywords

    Markov switching; DSGE; indeterminacy.;
    All these keywords.

    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

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