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Generalizing the Taylor Principle: Comment

  • Roger E. A. Farmer
  • Daniel F. Waggoner
  • Tao Zha

Troy Davig and Eric Leeper (2007) have proposed a condition they call the generalized Taylor principle to rule out indeterminate equilibria in a version of the new-Keynesian model where the parameters of the policy rule follow a Markov-switching process. We show that although their condition rules out a subset of indeterminate equilibria, it does not establish uniqueness of the fundamental equilibrium. We discuss the differences between indeterminate fundamental equilibria included by Davig and Leeper's condition and fundamental equilibria that their condition misses. (E12, E31, E43, E52)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.1.608
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 100 (2010)
Issue (Month): 1 (March)
Pages: 608-17

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Handle: RePEc:aea:aecrev:v:100:y:2010:i:1:p:608-17
Note: DOI: 10.1257/aer.100.1.608
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  1. Troy Davig & Eric M. Leeper, 2005. "Generalizing the Taylor principle," Research Working Paper RWP 05-13, Federal Reserve Bank of Kansas City.
  2. Richard Clarida & Jordi Gali & Mark Gertler, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," NBER Working Papers 6442, National Bureau of Economic Research, Inc.
  3. Bennett T. McCallum, 1981. "On Non-Uniqueness in Rational Expectations Models: An Attempt at Perspective," NBER Working Papers 0684, National Bureau of Economic Research, Inc.
  4. Christopher A. Sims & Tao Zha, 2006. "Were There Regime Switches in U.S. Monetary Policy?," American Economic Review, American Economic Association, vol. 96(1), pages 54-81, March.
  5. Lubik, Thomas A. & Schorfheide, Frank, 2003. "Computing sunspot equilibria in linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 28(2), pages 273-285, November.
  6. Roger E.A. Farmer & Daniel F. Waggoner & Tao Zha, 2007. "Understanding the New Keynesian model when monetary policy switches regimes," Working Paper 2007-12, Federal Reserve Bank of Atlanta.
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