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

Jean-Bernard Chatelain and Kirsten Ralf

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Abstract: 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.

Keywords: Bifurcations; Commitment; Taylor Rule; Taylor Principle; New-Keynesian Model; Ramsey Optimal Policy (search for similar items in EconPapers)
Date: 2021-12
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
Note: View the original document on HAL open archive server: https://hal.science/hal-01527872v2
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Citations: View citations in EconPapers (7)

Published in Macroeconomic Dynamics, 2021, 25 (8), pp.2204-2236. ⟨10.1017/S1365100519001032⟩

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Related works:
Journal Article: HOPF BIFURCATION FROM NEW-KEYNESIAN TAYLOR RULE TO RAMSEY OPTIMAL POLICY (2021)
Working Paper: Hopf Bifurcation from new-Keynesian Taylor rule to Ramsey Optimal Policy (2021)
Working Paper: Hopf Bifurcation from new-Keynesian Taylor rule to Ramsey Optimal Policy (2020)
Working Paper: Hopf Bifurcation from New-Keynesian Taylor Rule to Ramsey Optimal Policy (2020)
Working Paper: Hopf Bifurcation from New-Keynesian Taylor Rule to Ramsey Optimal Policy (2020)
Working Paper: Hopf Bifurcation from new-Keynesian Taylor rule to Ramsey Optimal Policy (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01527872

DOI: 10.1017/S1365100519001032

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