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Hopf bifurcation in the Clarida, Gali, and Gertler model

  • Barnett, William A.
  • Eryilmaz, Unal

We explore bifurcation phenomena in the open-economy New Keynesian CGG Model based on Clarida et al. (2001, 2002). We find that the open economy framework can bring about more complex dynamics, along with a wider variety of qualitative behaviors and policy responses. Introducing parameters related to the open economy structure affects the values of bifurcation parameters and changes the location of bifurcation boundaries. As a result, the stratification of the confidence region, as previously seen in closed-economy New Keynesian models, remains an important research and policy risk to be considered in the context of the open-economy New Keynesian functional structures. In fact, econometrics and optimal policy design become more complex within an open economy. Dynamical inferences need to be qualified by the risk of bifurcation boundaries crossing the confidence regions. Without adequate prior econometric research, policy design needs to take into consideration that a change in monetary policy can produce an unanticipated bifurcation.

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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 31 (2013)
Issue (Month): C ()
Pages: 401-404

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Handle: RePEc:eee:ecmode:v:31:y:2013:i:c:p:401-404
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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  1. Jordi Galí & Tommaso Monacelli, 2003. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," Working Papers 11, Barcelona Graduate School of Economics.
  2. Barnett William A. & He Yijun, 1999. "Stability Analysis of Continuous-Time Macroeconometric Systems," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 3(4), pages 1-22, January.
  3. Eric M. Leeper & Christopher A. Sims, 1994. "Toward a modern macroeconomic model usable for policy analysis," FRB Atlanta Working Paper No. 94-5, Federal Reserve Bank of Atlanta.
  4. Grandmont Jean-michel, 1983. "On endogenous competitive business cycles," CEPREMAP Working Papers (Couverture Orange) 8316, CEPREMAP.
  5. Banerjee, Sanjibani & Barnett, William A. & Duzhak, Evgeniya A. & Gopalan, Ramu, 2011. "Bifurcation Analysis of Zellner's Marshallain Macroeconomic Model," MPRA Paper 30059, University Library of Munich, Germany.
  6. He, Yijun & Barnett, William A., 2006. "Singularity bifurcations," Journal of Macroeconomics, Elsevier, vol. 28(1), pages 5-22, March.
  7. Richard Clarida & Jordi Gali & Mark Gertler, 2002. "A Simple Framework for International Monetary Policy Analysis," NBER Working Papers 8870, National Bureau of Economic Research, Inc.
  8. Richard Clarida & Jordi Gali & Mark Gertler, 2001. "Optimal Monetary Policy in Open versus Closed Economies: An Integrated Approach," American Economic Review, American Economic Association, vol. 91(2), pages 248-252, May.
  9. Carl E. Walsh, 2003. "Monetary Theory and Policy, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232316, June.
  10. Barnett, William A. & He, Yijun, 2002. "Stabilization Policy As Bifurcation Selection: Would Stabilization Policy Work If The Economy Really Were Unstable?," Macroeconomic Dynamics, Cambridge University Press, vol. 6(05), pages 713-747, November.
  11. Barnett, William A. & Duzhak, Evgeniya, 2006. "Non-Robust Dynamic Inferences from Macroeconometric Models: Bifurcation Stratification of Confidence Regions," MPRA Paper 402, University Library of Munich, Germany.
  12. William Barnett & Evgeniya Duzhak, 2010. "Empirical assessment of bifurcation regions within New Keynesian models," Economic Theory, Springer, vol. 45(1), pages 99-128, October.
  13. Barnett, William & Eryilmaz, Unal, 2012. "An analytical and numerical search for bifurcations in open economy New Keynesian models," MPRA Paper 40426, University Library of Munich, Germany.
  14. Jordi Gali & Tommaso Monacelli, 1999. "Optimal Monetary Policy and Exchange Rate Volatility in a Small Open Economy," Boston College Working Papers in Economics 438, Boston College Department of Economics, revised 15 Nov 1999.
  15. Senay, Ozge & Sutherland, Alan, 2004. "The Expenditure Switching Effect and the Choice Between Fixed and Floating Exchange Rates," CEPR Discussion Papers 4300, C.E.P.R. Discussion Papers.
  16. Wei Dong, 2007. "Expenditure-Switching Effect and the Choice of Exchange Rate Regime," Working Papers 07-54, Bank of Canada.
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