Preprint

Hopf Bifurcation from new-Keynesian Taylor rule to Ramsey Optimal Policy

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.

Language
Englisch

Classification
Wirtschaft
Optimization Techniques; Programming Models; Dynamic Analysis
Existence and Stability Conditions of Equilibrium
Interest Rates: Determination, Term Structure, and Effects
Money and Interest Rates: Forecasting and Simulation: Models and Applications
Monetary Policy
Central Banks and Their Policies
Subject
Bifurcation
Taylor rule
new-Keynesian model
Ramsey optimal policy
Finite horizon commitment

Event
Geistige Schöpfung
(who)
Chatelain, Jean-Bernard
Ralf, Kirsten
Event
Veröffentlichung
(who)
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften, Leibniz-Informationszentrum Wirtschaft
(where)
Kiel und Hamburg
(when)
2017

Handle
Last update
10.03.2025, 11:44 AM CET

Data provider

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Object type

  • Preprint

Associated

  • Chatelain, Jean-Bernard
  • Ralf, Kirsten
  • ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften, Leibniz-Informationszentrum Wirtschaft

Time of origin

  • 2017

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