# Stability Analysis in a Monetary Model With a Varying Intertemporal Elasticity of Substitution

*Orlando Gomes* ()

*The IUP Journal of Monetary Economics*, 2009, vol. VII, issue 2, 32-41

**Abstract:**
Models dealing with monetary policy are generally based on microfoundations that characterize the behavior of representative agents (households and firms). To explain the representative consumer behavior, it generally assumes a utility function in which the intertemporal elasticity of substitution is constant. Recent literature casts some doubts about the relevance of considering such a constant elasticity value. In this paper, the new Keynesian monetary policy model is explored under the assumption that the elasticity of substitution changes with expectations regarding real economic performance. As a result, one observes that some combinations of parameter values allow for a stable fixed point outcome, while other combinations of parameters are compatible with cycles of various periodicities and even aperiodic fluctuations.

**Date:** 2009

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Working Paper: Stability analysis in a monetary model with a varying intertemporal elasticity of substitution (2007)

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**Persistent link:** https://EconPapers.repec.org/RePEc:icf:icfjmo:v:07:y:2009:i:2:p:32-41

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