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Equilibrium Determinacy of Endogenous Growth with Generalized Taylor Rule: A Discrete-Time Analysis

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  • Seiya Fujisaki

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    (Graduate School of Economics, Osaka University)

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    Abstract

    This paper examines equilibrium determinacy of a discrete-time AK growth model with a generalized Taylor rule under which interest rate responds to the growth rate of real income as well as to the rate of inflation. We use the standard money-in-the-utility formulation in which money is superneutral on the balanced-growth path. We show that even in such a simple environment, the generalized Taylor rule may yield indeterminacy of equilibrium easily. We also demonstrate that equilibrium determinacy depends on the timing of money holding of households as well.

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    File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/0821.pdf
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    Bibliographic Info

    Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 08-21.

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    Length: 28 pages
    Date of creation: Apr 2008
    Date of revision:
    Handle: RePEc:osk:wpaper:0821

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    Web page: http://www.econ.osaka-u.ac.jp/
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    Keywords: equilibrium determinacy; the Taylor rules; endogenous growth; timing of money holdings;

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    1. Jess Benhabib & Stephanie Schmitt-Grohe & Martin Uribe, 1998. "Monetary policy and multiple equilibria," Finance and Economics Discussion Series 1998-29, Board of Governors of the Federal Reserve System (U.S.).
    2. Leeper, Eric M., 1991. "Equilibria under 'active' and 'passive' monetary and fiscal policies," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 129-147, February.
    3. repec:ebl:ecbull:v:5:y:2007:i:11:p:1-7 is not listed on IDEAS
    4. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
    5. Ming Hon Suen & Chong K. Yip, 2001. "Superneutrality, Indeterminacy, and Endogenous Growth," Departmental Working Papers _136, Chinese University of Hong Kong, Department of Economics.
    6. Chen, Shu-Hua & Guo, Jang-Ting, 2008. "Velocity of money, equilibrium (in)determinacy and endogenous growth," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1085-1096, September.
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