The Taylor Principle and Global Determinacy in a Non-Ricardian World
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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