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Generalizing the Taylor Principle: New Comment

  • Barthélemy, J.
  • Marx, M.

In this paper, we provide determinacy conditions, i.e. conditions ensuring the existence and uniqueness of a bounded solution, in a purely forward-looking linear Markov switching rational expectations model. We thus settle the debate between Davig and Leeper (2007) and Farmer et al. (2010). The conditions derived by the former are valid in a subset of bounded solutions only depending on a finite number of past regimes, that we call Markovian. However, in the complete bounded solution space, the new determinacy conditions we derive are tighter. Nevertheless, when unique, the solution coincides with the Markovian solution of Davig and Leeper (2007). We finally illustrate our results in the standard new-Keynesian model studied by Davig and Leeper (2007) and Farmer et al. (2010).

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Paper provided by Banque de France in its series Working papers with number 403.

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Length: 25 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:bfr:banfra:403
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  1. Roger E. A. Farmer & Daniel F. Waggoner & Tao Zha, 2006. "Indeterminacy in a Forward Looking Regime Switching Model," NBER Working Papers 12540, National Bureau of Economic Research, Inc.
  2. Magali Marx & Jean Barthelemy, 2013. "State-Dependent Probability Distributions in Non Linear Rational Expectations Models," 2013 Meeting Papers 576, Society for Economic Dynamics.
  3. Renne, J-P., 2012. "A model of the euro-area yield curve with discrete policy rates," Working papers 395, Banque de France.
  4. Towbin, P., 2012. "Financial Integration and External Sustainability," Working papers 388, Banque de France.
  5. Troy A. Davig & Taeyoung Doh, 2008. "Monetary policy regime shifts and inflation persistence," Research Working Paper RWP 08-16, Federal Reserve Bank of Kansas City.
  6. Angela Cheptea & Lionel Fontagné & Soledad Zignago, 2014. "European export performance," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01175962, HAL.
  7. Frederique Bec & Marie Bessec, 2013. "Inventory Investment Dynamics and Recoveries: A Comparison of Manufacturing and Retail Trade Sectors," Economics Bulletin, AccessEcon, vol. 33(3), pages 2209-2222.
  8. Gilbert Cette & Nicolas Dromel & Rémy Lecat & Anne-Charlotte Paret, 2012. "Labour relations quality and productivity: An empirical analysis on French firms," Documents de travail du Centre d'Economie de la Sorbonne 12052, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  9. Jean-Stéphane Mésonnier & Dalibor Stevanovic, 2013. "Bank Leverage Shocks and the Macroeconomy: a New Look in a Data-Rich Environment," Cahiers de recherche 1330, CIRPEE.
  10. Troy Davig & Eric M. Leeper, 2005. "Generalizing the Taylor Principle," NBER Working Papers 11874, National Bureau of Economic Research, Inc.
  11. Gaballo, G., 2012. "Private Uncertainty and Multiplicity," Working papers 387, Banque de France.
  12. Bussière, M. & Ristiniemi, A., 2012. "Credit Ratings and Debt Crises," Working papers 396, Banque de France.
  13. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July.
  14. Dufrénot, G. & Triki, K., 2012. "Why have governments succeeded in reducing French public debt historically and can these successes inspired us for the future? An historical perspective since 1890," Working papers 386, Banque de France.
  15. Antipa, Pamfili & Barhoumi, Karim & Brunhes-Lesage, Véronique & Darné, Olivier, 2012. "Nowcasting German GDP: A comparison of bridge and factor models," Journal of Policy Modeling, Elsevier, vol. 34(6), pages 864-878.
  16. Yannick Kalantzis & Ryo Kambayashi & Sébastien Lechevalier, 2012. "Wage and Productivity Differentials in Japan: The Role of Labor Market Mechanisms," LABOUR, CEIS, vol. 26(4), pages 514-541, December.
  17. Monfort, Alain & Pegoraro, Fulvio, 2012. "Asset pricing with Second-Order Esscher Transforms," Journal of Banking & Finance, Elsevier, vol. 36(6), pages 1678-1687.
  18. Edouard Challe & Benoît Mojon & Xavier Ragot, 2013. "Equilibrium risk shifting and interest rate in an opaque financial system," PSE - Labex "OSE-Ouvrir la Science Economique" halshs-00944916, HAL.
  19. Gabrieli, S., 2012. "Too-connected versus too-big-to-fail: banks’ network centrality and overnight interest rates," Working papers 398, Banque de France.
  20. Gaballo, G., 2012. "Good Luck or Good Policy? An Expectational Theory of Macro-Volatility Switches," Working papers 402, Banque de France.
  21. repec:hal:journl:halshs-00721296 is not listed on IDEAS
  22. Francesco Bianchi, 2012. "Evolving Monetary/Fiscal Policy Mix in the United States," American Economic Review, American Economic Association, vol. 102(3), pages 167-72, May.
  23. Fuentes Castro, D., 2012. "Funding for green growth," Working papers 392, Banque de France.
  24. repec:dau:papers:123456789/11777 is not listed on IDEAS
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