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Generalizing the Taylor Principle: New Comment

Jean Barthélemy and Magali Marx

Working papers from Banque de France

Abstract: In this paper, we provide determinacy conditions, i.e. conditions ensuring the existence and uniqueness of a bounded solution, in a purely forward-looking linear Markov switching rational expectations model. We thus settle the debate between Davig and Leeper (2007) and Farmer et al. (2010). The conditions derived by the former are valid in a subset of bounded solutions only depending on a finite number of past regimes, that we call Markovian. However, in the complete bounded solution space, the new determinacy conditions we derive are tighter. Nevertheless, when unique, the solution coincides with the Markovian solution of Davig and Leeper (2007). We finally illustrate our results in the standard new-Keynesian model studied by Davig and Leeper (2007) and Farmer et al. (2010).

Keywords: Markov switching; DSGE; indeterminacy. (search for similar items in EconPapers)
JEL-codes: E31 E43 E52 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2012
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: Generalizing the Taylor Principle: New Comment (2012) Downloads
Working Paper: Generalizing the Taylor Principle: New Comment (2012) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:403

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