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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).

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Bibliographic Info

Paper provided by Banque de France in its series Working papers with number 403.

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Length: 25 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:bfr:banfra:403

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Related research

Keywords: Markov switching; DSGE; indeterminacy.;

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Cited by:
  1. 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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