scholarly journals STRUCTURAL STABILITY OF THE GENERALIZED TAYLOR RULE

2017 ◽  
Vol 23 (4) ◽  
pp. 1664-1678
Author(s):  
William A. Barnett ◽  
Evgeniya A. Duzhak
Keyword(s):  
Regime Switching ◽  
Taylor Rule ◽  
Period Doubling ◽  
New Keynesian ◽  
New Keynesian Model ◽  
Policy Regime ◽  
Keynesian Model ◽  
Small Change ◽  
Monetary Models ◽  
Active Policy

This paper analyzes the dynamical properties of monetary models with regime switching. We start with the analysis of the evolution of inflation when policy is guided by a simple monetary rule where coefficients switch with the policy regime. We rule out the possibility of a Hopf bifurcation and demonstrate the possibility of a period-doubling bifurcation. As a result, a small change in the parameters (e.g., a more active policy response) can lead to a drastic change in the path of inflation. We show that the New Keynesian model with a current-looking Taylor rule is not prone to bifurcations. A New Keynesian model with a hybrid rule, however, exhibits the same pattern of period-doubling bifurcations as the analysis with a simple monetary rule.

Generalizing the Taylor Principle: Reply

2010 ◽  
Vol 100 (1) ◽  
pp. 618-624 ◽  
Author(s):  
Troy Davig ◽  
Eric M Leeper
Keyword(s):  
Monetary Policy ◽  
Regime Switching ◽  
Multiple Solutions ◽  
New Keynesian ◽  
New Keynesian Model ◽  
Keynesian Model ◽  
The One

Farmer, Waggoner, and Zha (2009) (FWZ) show that a new Keynesian model with regime-switching monetary policy can support multiple solutions, appearing to contradict findings in Davig and Leeper (2007) (DL). The explanation is straightforward: FWZ derive solutions using a model that differs from the one to which the DL conditions apply. The FWZ solutions also require that the exogenous driving process is a function of private and policy parameters. This undermines the sharp distinctions among “deep parameters” typical of optimizing models and makes it difficult to ascribe economic interpretations to FWZ's additional solutions. (E12, E31, E43, E52)

scholarly journals MONETARY POLICY, INFLATION AND UNEMPLOYMENT: IN DEFENSE OF THE FEDERAL RESERVE

2012 ◽  
Vol 17 (6) ◽  
pp. 1311-1329 ◽  
Author(s):  
Nicolas Groshenny
Keyword(s):  
Monetary Policy ◽  
Federal Reserve ◽  
Inflation Rate ◽  
Taylor Rule ◽  
New Keynesian ◽  
New Keynesian Model ◽  
Keynesian Model ◽  
Sustainable Employment ◽  
Sizeable Increase ◽  
Low Rate

To what extent did deviations from the Taylor rule between 2002 and 2006 help to promote price stability and maximum sustainable employment? To address that question, I estimate a New Keynesian model with unemployment and perform a counterfactual experiment where monetary policy strictly follows a Taylor rule over the period 2002:Q1–2006:Q4. I find that such a policy would have generated a sizeable increase in unemployment and resulted in an undesirably low rate of inflation. Around mid-2004, when the counterfactual deviates the most from the actual series, the model indicates that the probability of an unemployment rate greater than 8% would have been as high as 80%, whereas the probability of an inflation rate above 1% would have been close to zero.

A NOTE ON THE SLOPE OF THE AGGREGATE DEMAND CURVE AT THE ZERO LOWER BOUND

2020 ◽  
pp. 1-20
Author(s):  
Yangyang Ji ◽  
Wei Xiao
Keyword(s):  
Lower Bound ◽  
Regime Switching ◽  
Demand Curve ◽  
Aggregate Demand ◽  
New Keynesian ◽  
Supply Side ◽  
Zero Lower Bound ◽  
New Keynesian Model ◽  
Fiscal Multiplier ◽  
Keynesian Model

This paper analyzes a regime-switching New Keynesian model to understand what happens to the aggregate economy when the nominal interest rate hits the zero lower bound (ZLB). Contrary to the literature, our model predicts that the aggregate demand curve is not always upward sloping when the ZLB binds. Instead, it depends on expectations. If the expected duration of the ZLB is short but consistent with expectations surveys, the AD curve can be downward sloping. In that case, the fiscal multiplier is moderate and supply-side reforms are expansionary. These results complement existing findings in the literature.

scholarly journals Tight Money-Tight Credit: Coordination Failure in the Conduct of Monetary and Financial Policies

2021 ◽  
Vol 13 (3) ◽  
pp. 37-73
Author(s):  
Julio A. Carrillo ◽  
Enrique G. Mendoza ◽  
Victoria Nuguer ◽  
Jessica Roldán-Peña
Keyword(s):  
Taylor Rule ◽  
New Keynesian ◽  
New Keynesian Model ◽  
Coordination Failure ◽  
Financial Policies ◽  
Income Effects ◽  
Keynesian Model ◽  
Costly Monitoring ◽  
Efficiency Losses ◽  
Stabilization Policies

Violations of Tinbergen’s rule and strategic interaction undermine stabilization policies in a New Keynesian model with the Bernanke-Gertler accelerator. Welfare costs of risk shocks are large because of efficiency losses and income effects of costly monitoring, but they are much larger under a simple Taylor rule (STR) or a Taylor rule augmented with credit spreads (ATR) than with a Taylor rule and a separate financial rule targeting spreads. ATR and STR are tight money-tight credit regimes responding too much (little) to inflation (spreads). The Nash equilibrium of monetary and financial policies is also tight money-tight credit but it dominates ATR and STR. (JEL E12, E31, E44, E43, E52, E63)

WHAT WE DON'T KNOW ABOUT THE MONETARY TRANSMISSION MECHANISM AND WHY WE DON'T KNOW IT

2008 ◽  
Vol 12 (S1) ◽  
pp. 60-74 ◽  
Author(s):  
ANDREAS BEYER ◽  
ROGER E.A. FARMER
Keyword(s):  
Rational Expectations ◽  
Transmission Mechanism ◽  
New Keynesian ◽  
Monetary Transmission ◽  
Reduced Form ◽  
New Keynesian Model ◽  
Policy Rule ◽  
Policy Regime ◽  
Equivalent Models ◽  
Keynesian Model

We study identification in a class of linear rational expectations models. For any given exactly identified model, we provide an algorithm that generates a class of equivalent models that have the same reduced form. We use our algorithm to show that a model proposed by Jess Benhabib and Roger Farmer is observationally equivalent to the standard new-Keynesian model when observed over a single policy regime. However, the two models havedifferentimplications for the design of an optimal policy rule.

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