Arbeitspapier

Existence and uniqueness of solutions to dynamic models with occasionally binding constraints

to connected objects

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.

Language
Englisch

Classification
Wirtschaft
Existence and Stability Conditions of Equilibrium
Subject
occasionally binding constraints
zero lower bound
existence
uniqueness
price targeting

Event
Geistige Schöpfung
(who)
Holden, Tom D.
Event
Veröffentlichung
(who)
ZBW – Leibniz Information Centre for Economics
(where)
Kiel, Hamburg
(when)
2019

Handle
Last update
10.03.2025, 11:43 AM CET

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Object type

  • Arbeitspapier

Associated

  • Holden, Tom D.
  • ZBW – Leibniz Information Centre for Economics

Time of origin

  • 2019

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