Structural Stability of the Generalized Taylor Rule

William Barnett and Evgeniya A. Duzhak

MPRA Paper from University Library of Munich, Germany

Abstract: This paper analyzes the dynamical properties of monetary models with regime switching. We start with the analysis of the evolution of inflation when policy is guided by a simple monetary rule where coefficients switch with the policy regime. We rule out the possibility of a Hopf bifurcation and demonstrate the existence of a period doubling bifurcation. As a result, a small change in the parameters (e.g., a more active policy response) can lead to a drastic change in the path of inflation. We demonstrate that while the New Keynesian model with a current-looking Taylor rule is not prone to bifurcations, a hybrid rule exhibits the same pattern of period doubling bifurcations as the basic setup.

Keywords: New Keynesian; Taylor Rule; regime switching; bifurcation analysis; structural stability. (search for similar items in EconPapers)
JEL-codes: C14 C22 E32 E37 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-ore
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https://mpra.ub.uni-muenchen.de/58737/1/MPRA_paper_58737.pdf original version (application/pdf)

Related works:
Journal Article: STRUCTURAL STABILITY OF THE GENERALIZED TAYLOR RULE (2019)
Working Paper: Structural Stability of the Generalized Taylor Rule (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:58737

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