Hopf bifurcation from new-Keynesian Taylor rule to Ramsey optimal policy

Jean-Bernard Chatelain, Kirsten Ralf

This paper compares different implementations of monetary policy in a new-Keynesian setting. We can show that a shift from Ramsey optimal policy under short-term commitment (based on a negative feedback mechanism) to a Taylor rule (based on a positive feedback mechanism) corresponds to a Hopf bifurcation with opposite policy advice and a change of the dynamic properties. This bifurcation occurs because of the ad hoc assumption that interest rate is a forward-looking variable when policy targets (inflation and output gap) are forward-looking variables in the new-Keynesian theory

MoreLess

Year of publication:	[2017]
Authors:	Chatelain, Jean-Bernard ; Ralf, Kirsten
Publisher:	Paris : Paris-Jourdan Sciences Economiques
Subject:	Bifurcations \| Taylor Rule \| Taylor Principle \| New-Keynesian Model \| Ramsey Optimal Policy \| Taylor-Regel \| Taylor rule \| Theorie \| Theory \| Geldpolitik \| Monetary policy \| Neoklassische Synthese \| Neoclassical synthesis \| Regelbindung versus Diskretion \| Rules versus discretion \| Preisrigidität \| Price stickiness \| Dynamisches Gleichgewicht \| Dynamic equilibrium