Active Interest Rate Rules and the Role of Stabilization Policy R&D Tax Credits
In a series of papers, Benhabib, Schmitt-Grohé and Uribe (2001a, 2001b, 2001c, 2002 and 2004) have shown that active interest rules may lead to very unexpected consequences: indeterminacy, deflation traps, large cyclical instability, and can even lead to chaotic dynamics under standard sets of parameter values. This paper explores this particular model model and puts forward four basic points: (i) the model developed by Benhabib and associates seems to suffer from serious drawbacks to be used as a theoretical benchmark to guide optimal monetary policy, as the more aggressive the central bank becomes, the more unstable the economy will be; (ii) the time span required to achieve successful control is generally small, by linear feedback techniques – the OGY method – without producing modifications to the original model, apart from locally changing its type of stability; (iii) ignorance about the true state of initial conditions are not a serious impediment to obtain control of the chaotic dynamics in the model; (iv) we argue that the conventional view of economic policy in nonlinear general equilibrium models – when endogenous fluctuations exist in optimizing models, the associated policy advice is laissez—faire – seems to be based on a misconception of chaos in general, and on the control of chaos in particular.
|Date of creation:||15 Sep 2006|
|Contact details of provider:|| Web page: http://bru-unide.iscte.pt/|
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Barnett, William A. & Serletis, Apostolos & Serletis, Demitre, 2015.
"Nonlinear And Complex Dynamics In Economics,"
Cambridge University Press, vol. 19(08), pages 1749-1779, December.
- William A. Barnett & Alfredo Medio & Apostolos Serletis, 1997. "Nonlinear and Complex Dynamics in Economics," Econometrics 9709001, EconWPA.
- William Barnett & Apostolos Serletis & Demitre Serletis, 2012. "Nonlinear and Complex Dynamics in Economics," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201238, University of Kansas, Department of Economics, revised Sep 2012.
- Barnett, William A. & Serletis, Apostolos & Serletis, Demitre, 2012. "Nonlinear and Complex Dynamics in Economics," MPRA Paper 41245, University Library of Munich, Germany.
- William Barnett & Alfredo Medio & Apostolos Serletis, 2012. "Nonlinear And Complex Dynamics In Economics," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201223, University of Kansas, Department of Economics, revised Sep 2012.
- Boldrin, Michele & Woodford, Michael, 1990. "Equilibrium models displaying endogenous fluctuations and chaos : A survey," Journal of Monetary Economics, Elsevier, vol. 25(2), pages 189-222, March.
- Michele Boldrin & Michael Woodford, 1988. "Equilibruim Models Displaying Endogenous Fluctuations and Chaos: A Survey," UCLA Economics Working Papers 530, UCLA Department of Economics.
- repec:ebl:ecbull:v:5:y:2003:i:10:p:1-7 is not listed on IDEAS
- Bullard, James & Mitra, Kaushik, 2002. "Learning about monetary policy rules," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1105-1129, September.
- Kaushik Mitra & James Bullard, "undated". "Learning About Monetary Policy Rules," Discussion Papers 00/41, Department of Economics, University of York.
- James B. Bullard & Kaushik Mitra, 2002. "Learning about monetary policy rules," Working Papers 2000-001, Federal Reserve Bank of St. Louis.
- Kaas, Leo, 1998. "Stabilizing chaos in a dynamic macroeconomic model," Journal of Economic Behavior & Organization, Elsevier, vol. 33(3-4), pages 313-332, January.
- Guo, Jang-Ting & Lansing, Kevin J., 2002. "Fiscal Policy, Increasing Returns, And Endogenous Fluctuations," Macroeconomic Dynamics, Cambridge University Press, vol. 6(05), pages 633-664, November.
- Jang-Ting Guo & Kevin Lansing, 1999. "Fiscal policy, increasing returns, and endogenous fluctuations," Working Papers in Applied Economic Theory 99-08, Federal Reserve Bank of San Francisco.
- Christiano, Lawrence J. & G. Harrison, Sharon, 1999. "Chaos, sunspots and automatic stabilizers," Journal of Monetary Economics, Elsevier, vol. 44(1), pages 3-31, August.
- Lawrence J. Christiano & Sharon G. Harrison, 1996. "Chaos, sunspots, and automatic stabilizers," Staff Report 214, Federal Reserve Bank of Minneapolis.
- Lawrence J. Christiano & Sharon G. Harrison, 1996. "Chaos, sunspots, and automatic stabilizers," Working Paper Series, Macroeconomic Issues WP-96-16, Federal Reserve Bank of Chicago.
- Lawrence J. Christiano & Sharon G. Harrison, 1996. "Chaos, Sunspots, and Automatic Stabilizers," NBER Working Papers 5703, National Bureau of Economic Research, Inc.
- Thomas Seegmuller, 2003. "Endogenous fluctuations and public services in a simple OLG economy," Economics Bulletin, AccessEcon, vol. 5(10), pages 1-7.
- Marta Aloi & Hans Jorgen Jacobsen & Teresa Lloyd-Braga, 1998. "Endogenous Business Cycles and Stabilization Policies," Discussion Papers 00-06, University of Copenhagen. Department of Economics, revised Mar 2000.
- Aloi, M. & Jorgen, H. & Lloyd-Braga, T., 2000. "Endogenous Business Cycles and Stabilization Policies," Papers 00-06, Carleton - School of Public Administration.
- Marta Aloi & Hans Jorgen Jacobsen & Teresa Lloyd Braga, 1998. "Endogenous business cycles and stabilization policies," Economics Working Papers 476, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2000.
- Holyst, Janusz A & Hagel, Tilo & Haag, Gunter & Weidlich, Wolfgang, 1996. "How to Control a Chaotic Economy?," Journal of Evolutionary Economics, Springer, vol. 6(1), pages 31-42, February.
- Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, September.
- Carl Chiarella & Xue-Zhong He, 2000. "Stability of Competitive Equilibria with Heterogeneous Beliefs and Learning," Research Paper Series 37, Quantitative Finance Research Centre, University of Technology, Sydney.
- Bullard, James & Butler, Alison, 1993. "Nonlinearity and Chaos in Economic Models: Implications for Policy Decisions," Economic Journal, Royal Economic Society, vol. 103(419), pages 849-867, July.
- James B. Bullard & Alison Butler, 1992. "Nonlinearity and chaos in economic models: implications for policy decisions," Working Papers 1991-002, Federal Reserve Bank of St. Louis.
- Michael Kopel, 1997. "Improving the performance of an economic system: Controlling chaos," Journal of Evolutionary Economics, Springer, vol. 7(3), pages 269-289.
- Augeraud-Veron E. & Augier L., 2001. "Stabilizing Endogenous Fluctuations with Fiscal Policies: Global Analysis on Piecewise Continuous Dynamical Systems," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 5(1), pages 1-18, April.
- Marco Airaudo & Luis-Felipe Zanna, 2004. "Endogenous Fluctuations in Open Economies: the Perils of Taylor Rules Revisited," Econometric Society 2004 Latin American Meetings 80, Econometric Society.
- Marco Airaudo & Luis-Felipe Zanna, 2004. "Endogenous Fluctuations in Open Economies: The Perils of Taylor Rules Revisited," Money Macro and Finance (MMF) Research Group Conference 2004 6, Money Macro and Finance Research Group.
When requesting a correction, please mention this item's handle: RePEc:isc:iscwp1:ercwp0208. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Henrique Monteiro)
If references are entirely missing, you can add them using this form.