The Taylor principle and global determinacy in a non Ricardian world

Jean-Pascal Benassy () and Michel Guillard ()

PSE Working Papers from PSE (Ecole normale supérieure)

Abstract: The Taylor principle is quite usually considered as a central condition for price determinacy. Recently, however, this has been questioned on several grounds, notably because (i) this condition is a condition for local determinacy, not global determinacy (ii) it has been derived in "Ricardian" economies, and it appears that going to a non-Ricardian framework makes a very big difference for the determinacy conditions. In this paper we scrutinize the two issues together, and we find that for non-Ricardian equilibria the Taylor principle is replaced by another "financial dominance" criterion.

New Economics Papers: this item is included in nep-mon
Date: 2005
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