Determinacy analysis in high order dynamic systems: The case of nominal rigidities and limited asset market participation

Guido Ascari, Andrea Colciago and Lorenza Rossi

No 334, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: We show how to use Hurwitz polynomials to study the stability and uniqueness of Rational Expectation equilibria in Dynamic General Equilibrium models. We apply this method to a model characterized by staggered wage and price contracts and by limited asset market participation (LAMP). We prove analytically in a fourth-order dynamics system that, once nominal wage stickiness is taken into account, LAMP does not invalidate the Taylor Principle: for any plausible degree of asset market participation an active interest rate rule ensures the uniqueness of the rational expectation equilibrium.

Keywords: determinacy; high-order dynamics; sticky wages; non-Ricardian household (search for similar items in EconPapers)
JEL-codes: C62 E50 (search for similar items in EconPapers)
Pages: 21
Date: 2016-05-13, Revised 2016-05-13
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Determinacy analysis in high order dynamic systems: The case of nominal rigidities and limited asset market participation (2017)
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