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Discouraging Deviant Behavior in Monetary Economics

Author

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  • Lawrence Christiano
  • Yuta Takahashi

Abstract

We consider a model in which monetary policy is governed by a Taylor rule. The model has a unique equilibrium near the steady state, but also has other equilibria. The introduction of a particular escape clause into monetary policy works like the Taylor principle to exclude the other equilibria. We reconcile our finding about the escape clause with the sharply different conclusion reached in Cochrane (2011). Atkeson et al. (2010) study a different version of the escape clause policy, but that version is fragile in that it lacks a crucial robustness property.

Suggested Citation

  • Lawrence Christiano & Yuta Takahashi, 2018. "Discouraging Deviant Behavior in Monetary Economics," NBER Working Papers 24949, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:24949
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    Cited by:

    1. Barnett, William A. & Bella, Giovanni & Ghosh, Taniya & Mattana, Paolo & Venturi, Beatrice, 2022. "Shilnikov chaos, low interest rates, and New Keynesian macroeconomics," Journal of Economic Dynamics and Control, Elsevier, vol. 134(C).
    2. Jean Barthélemy & Eric Mengus, 2017. "Credibility and Monetary Policy," Working Papers hal-03457527, HAL.
    3. repec:hal:spmain:info:hdl:2441/1lu2rbsv0n8pkqid81q0tfof3f is not listed on IDEAS
    4. Holden, Tom D., 2022. "Robust real rate rules," Discussion Papers 42/2022, Deutsche Bundesbank.
    5. Maurice Obstfeld & Kenneth Rogoff, 2021. "Revisiting speculative hyperinflations in monetary models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 40, pages 1-11, April.

    More about this item

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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