Bubble-free policy feedback rules

Olivier Loisel

Journal of Economic Theory, 2009, vol. 144, issue 4, 1521-1559

Abstract: We consider a broad class of linear dynamic stochastic rational-expectations models made of a finite number N of structural equations for N+1 endogenous variables and to be closed by one policy feedback rule. We design, for any model of this class and any stationary VARMA solution of that model, a "bubble-free" policy feedback rule ensuring that this solution is not only the unique stationary solution of the closed model, but also its unique solution. We apply these results to locally linearisable models of the monetary transmission mechanism and obtain interest-rate rules that not only ensure the local determinacy of the targeted equilibrium in the neighbourhood of the steady state considered, but also prevent the economy from gradually leaving this neighbourhood.

Keywords: Linear; dynamic; rational-expectations; models; Policy; feedback; rules; Rational; bubbles; Saddle-path; property; Interest-rate; rules; Local; determinacy; Global; determinacy (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0022-0531(08)00173-7
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:144:y:2009:i:4:p:1521-1559

Access Statistics for this article

Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell

More articles in Journal of Economic Theory from Elsevier
Bibliographic data for series maintained by Catherine Liu ().