Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/204472
Authors: 
Holden, Tom D.
Year of Publication: 
2019
Abstract: 
Policy makers would like to prevent self-fulfilling fluctuations. Given the prevalence of occasionally binding constraints (OBCs) such as the zero lower bound (ZLB), this requires understanding the determinacy of models with OBCs. To this end, we derive existence and uniqueness conditions for otherwise linear models with OBCs. Our main result gives necessary and sufficient conditions for such a model to have a unique perfect foresight solution returning to a given steady state, for any initial condition. We show that while standard New Keynesian models with a ZLB possess multiple perfect-foresight paths eventually escaping the ZLB, price level targeting restores determinacy.
Subjects: 
occasionally binding constraints
zero lower bound
existence
uniqueness
price targeting
JEL: 
C62
E3
E4
E5
Document Type: 
Working Paper
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