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The Taylor principle and global determinacy in a non Ricardian world

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Jean-Pascal Bénassy
Michel Guillard

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Abstract

The Taylor principle is quite usually considered as a central condition for price determinacy. Recently, however, this has been questioned on several grounds, notably because (i) this condition is a condition for local determinacy, not global determinacy (ii) it has been derived in "Ricardian" economies, and it appears that going to a non-Ricardian framework makes a very big difference for the determinacy conditions. In this paper we scrutinize the two issues together, and we find that for non-Ricardian equilibria the Taylor principle is replaced by another "financial dominance" criterion.

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Paper provided by PSE (Ecole normale supérieure) in its series PSE Working Papers with number 2005-50.

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Date of creation: 2005
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Handle: RePEc:pse:psecon:2005-50

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  4. Jess Benhabib & Stephanie Schmitt-Grohe & Martin Uribe, 2001. "Monetary Policy and Multiple Equilibria," American Economic Review, American Economic Association, vol. 91(1), pages 167-186, March. [Downloadable!] (restricted)
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  5. 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. [Downloadable!] (restricted)
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  8. John B. Taylor, 1998. "Monetary policy and the long boom," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 3-12. [Downloadable!]
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