The Indeterminacy of Determinacy with Fiscal, Macro-prudential or Taylor Rules

Jean-Bernard Chatelain and Kirsten Ralf

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Abstract: The determinacy of dynamic stochastic general equilibrium models including fiscal, macro-prudential or Taylor rules relies on the assumption that policy instruments are forward-looking when policy targets are also forward-looking. Blanchard and Kahn (1980) determinacy condition does not forbid to assume that policy instruments are backward-looking when policy targets are forward-looking, as it is the case for Ramsey optimal policy under quasi-commitment. There is indeterminacy of determinacy unless six criteria are considered which are in favor of assuming that policy instruments are backward-looking when policy targets are forward-looking.

Keywords: Determinacy; Proportional Feedback rules; Dynamic Stochastic General Equilibrium; Taylor rule; Fiscal rule; Macro-prudential rule; optimal control; Ramsey optimal policy under quasi-commitment (search for similar items in EconPapers)
Date: 2018-09
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mac
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Working Paper: The Indeterminacy of Determinacy with Fiscal, Macro-prudential or Taylor Rules (2018)
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