Price indexation, habit formation, and the Generalized Taylor Principle

Saroj Bhattarai, Jae Won Lee and Woong Yong Park

No 152, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

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.

JEL-codes: E31 E52 E58 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2013
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: Published as: Bhattarai, Saroj, Jae Won Lee and Woong Yong Park (2014), "Price Indexation, Habit Formation, and the Generalized Taylor Principle," Journal of Economic Dynamics and Control 48: 218-225.
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Citations: View citations in EconPapers (1)

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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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