Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/158001
Authors: 
Chatelain, Jean-Bernard
Ralf, Kirsten
Year of Publication: 
2017
Abstract: 
This paper shows that a shift from Ramsey optimal policy under short term commitment (based on a negative-feedback mechanism) to a Taylor rule (based on positive-feedback mechanism) in the new-Keynesian model is in fact a Hopf bifurcation, with opposite policy advice. The number of stable eigenvalues corresponds to the number of predetermined variables including the interest rate and its lag as policy instruments for Ramsey optimal policy. With a new-Keynesian Taylor rule, however, these policy instruments are arbitrarily assumed to be forward-looking variables when policy targets (inflation and output gap) are forward-looking variables. For new-Keynesian Taylor rule, this Hopf bifurcation implies a lack of robustness and multiple equilibria if public debt is not set to zero for all observation.
Subjects: 
Bifurcation
Taylor rule
new-Keynesian model
Ramsey optimal policy
Finite horizon commitment
JEL: 
C61
C62
E43
E47
E52
E58
Document Type: 
Preprint

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