The Taylor Principle in a medium-scale macroeconomic model

Tommy Sveen () and Lutz Weinke
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Lutz Weinke: Humboldt-Universität zu Berlin

No 2010/09, Working Paper from Norges Bank

Abstract: The Taylor Principle is often used to explain macroeconomic stability (see, e.g., Clarida et al. 2000). The reason is that this simple principle guarantees determinacy, i.e., local uniqueness of rational expectations equilibrium, in many New Keynesian models. However, analyses of determinacy are generally conducted in the context of highly stylized models. In the present paper we use a medium-scale model which combines features that have been shown to explain fairly well postwar U.S. business cycles. Our main result demonstrates that the stability properties of forward-looking interest rate rules are very similar to the corresponding outcomes under current-looking rules. This is in stark contrast with many findings that have been obtained in the context of models whose empirical relevance is limited.

Keywords: Nominal Rigidities; Real Rigidities; Monetary Policy (search for similar items in EconPapers)
JEL-codes: E22 E31 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2010-05-28
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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https://www.norges-bank.no/en/news-events/news-pub ... pers/2010/WP-201009/

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Journal Article: The Taylor principle in a medium-scale macroeconomic model (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:bno:worpap:2010_09

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