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A Note on Regime Switching, Monetary Policy, and Multiple Equilibria

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  • Jess Benhabib

Abstract

When monetary policy is subject to regime switches conditions for determinacy become more complex. Davig and Leeper (2007) and Farmer, Waggoner and Zha (2009a) have studied such conditons. Using some new results from stochastic processes, we characterize the moments of the stationary distribution of inflation under regime switiching to obtain conditions for indeterminacy that can be easily checked and interpreted in terms of expected values of Taylor coefficients. In the last section, we outline methods to compute the moments of stationary distributions in regime switching models of higher dimensions.

Suggested Citation

  • Jess Benhabib, 2009. "A Note on Regime Switching, Monetary Policy, and Multiple Equilibria," NBER Working Papers 14770, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:14770
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    References listed on IDEAS

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    1. Jess Benhabib & Alberto Bisin & Shenghao Zhu, 2011. "The Distribution of Wealth and Fiscal Policy in Economies With Finitely Lived Agents," Econometrica, Econometric Society, vol. 79(1), pages 123-157, January.
    2. Roger E. A. Farmer & Daniel F. Waggoner & Tao Zha, 2010. "Generalizing the Taylor Principle: Comment," American Economic Review, American Economic Association, vol. 100(1), pages 608-617, March.
    3. Hess Chung & Troy Davig & Eric M. Leeper, 2007. "Monetary and Fiscal Policy Switching," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(4), pages 809-842, June.
    4. McCallum, Bennett T., 1983. "On non-uniqueness in rational expectations models : An attempt at perspective," Journal of Monetary Economics, Elsevier, vol. 11(2), pages 139-168.
    5. Troy Davig & Eric M. Leeper, 2007. "Generalizing the Taylor Principle," American Economic Review, American Economic Association, vol. 97(3), pages 607-635, June.
    6. Troy Davig & Eric M. Leeper, 2007. "Fluctuating Macro Policies and the Fiscal Theory," NBER Chapters, in: NBER Macroeconomics Annual 2006, Volume 21, pages 247-316, National Bureau of Economic Research, Inc.
    7. Farmer, Roger E.A. & Waggoner, Daniel F. & Zha, Tao, 2009. "Understanding Markov-switching rational expectations models," Journal of Economic Theory, Elsevier, vol. 144(5), pages 1849-1867, September.
    8. Roger E. A. Farmer & Daniel F. Waggoner & Tao Zha, 2009. "Indeterminacy in a forward‐looking regime switching model," International Journal of Economic Theory, The International Society for Economic Theory, vol. 5(1), pages 69-84, March.
    9. Daron Acemoglu & Kenneth Rogoff & Michael Woodford, 2007. "NBER Macroeconomics Annual 2006, Volume 21," NBER Books, National Bureau of Economic Research, Inc, number acem06-1, May.
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    Cited by:

    1. Baele, Lieven & Bekaert, Geert & Cho, Seonghoon & Inghelbrecht, Koen & Moreno, Antonio, 2015. "Macroeconomic regimes," Journal of Monetary Economics, Elsevier, vol. 70(C), pages 51-71.
    2. Seonghoon Cho, 2016. "Sufficient Conditions for Determinacy in a Class of Markov-Switching Rational Expectations Models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 21, pages 182-200, July.
    3. Troy Davig & Eric M. Leeper, 2009. "Reply to \"Generalizing the Taylor principle\": a comment," Research Working Paper RWP 09-09, Federal Reserve Bank of Kansas City.
    4. Troy A. Davig & Eric M. Leeper, 2009. "Reply to "Generalizing the Taylor principle": a comment," Research Working Paper RWP 09-09, Federal Reserve Bank of Kansas City.
    5. Jess Benhabib & Chetan Dave, 2014. "Learning, Large Deviations and Rare Events," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(3), pages 367-382, July.

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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