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Discretionary Policy and Multiple Equilibria in LQ RE Models

  • Blake, Andrew P.
  • Kirsanova, Tatiana

We study discretionary equilibria in dynamic linear-quadratic rational expectations models. In contrast to the assumptions that pervade this literature we show that these models do have multiple equilibria in some situations. We demonstrate the existence of multiple discretionary equilibria by example. We investigate general properties of discretionary equilibria and discuss implications for numerical algorithms.

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File URL: https://mpra.ub.uni-muenchen.de/21901/1/MPRA_paper_21901.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 21901.

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Date of creation: 09 Nov 2006
Date of revision: 01 Apr 2010
Handle: RePEc:pra:mprapa:21901
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  12. Robert G. King & Alexander L. Wolman, 2004. "Monetary discretion, pricing complementarity and dynamic multiple equilibria," International Finance Discussion Papers 802, Board of Governors of the Federal Reserve System (U.S.).
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  19. Evans, George W. & Honkapohja, Seppo, 2001. "Expectations and the Stability Problem for Optimal Monetary Policies," CEPR Discussion Papers 2805, C.E.P.R. Discussion Papers.
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  22. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
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