Generalizing the Taylor Principle: New Comment

Jean Barthélemy and Magali Marx

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Abstract: In this paper, we provide determinacy conditions, i.e. conditions ensuring the existence and uniqueness of a bounded solution, in a purely forward-looking linear Markov switching rational expectations model. We thus settle the debate between Davig and Leeper (2007) and Farmer et al. (2010). The conditions derived by the former are valid in a subset of bounded solutions only depending on a finite number of past regimes, that we call Markovian. However, in the complete bounded solution space, the new determinacy conditions we derive are tighter. Nevertheless, when unique, the solution coincides with the Markovian solution of Davig and Leeper (2007). We finally illustrate our results in the standard new-Keynesian model studied by Davig and Leeper (2007) and Farmer et al. (2010).

Keywords: Markov switching; DGSE; Indeterminancy; Changements de régime; DSGE; Indétermination (search for similar items in EconPapers)
Date: 2012-10-01
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03461113
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Citations: View citations in EconPapers (11)

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Working Paper: Generalizing the Taylor Principle: New Comment (2012)
Working Paper: Generalizing the Taylor Principle: New Comment (2012)
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