Price Indexation, Habit Formation, and the Generalized Taylor Principle

Saroj Bhattarai, Jae Won Lee and Woong Yong Park

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: We prove that the Generalized Taylor Principle, under which the nominal interest rate reacts more than one-for-one to inflation in the long run, is a necessary and (under some extra mild restrictions on parameters) sufficient condition for determinacy in a sticky price model with positive steady-state inflation, interest rate smoothing in monetary policy, partial dynamic price indexation, and habit formation in consumption.

Keywords: Determinacy; Generalized Taylor Principle; Sticky prices; Price indexation; Habit formation; Steady-state inflation (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2013-09
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Related works:
Journal Article: Price indexation, habit formation, and the Generalized Taylor Principle (2014)
Working Paper: Price indexation, habit formation, and the Generalized Taylor Principle (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2013-52

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