Structural Stability of the Generalized Taylor Rule
William Barnett () and
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Evgeniya Duzhak: Zicklin School of Business, Baruch College, City University of New York
No 201404, WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS from University of Kansas, Department of Economics
This paper analyzes the dynamical properties of monetary models with regime switching. We start with the analysis of the evolution of inflation when policy is guided by a simple monetary rule where coe- cients switch with the policy regime. We rule out the possibility of a Hopf bifurcation and demonstrate the existence of a period doubling bifurca- tion. As a result, a small change in the parameters (e.g. a more active policy response) can lead to a drastic change in the path of in ation. We demonstrate that while the New Keynesian model with a current-looking Taylor rule is not prone to bifurcations, a hybrid rule exhibits the same pattern of period doubling bifurcations as the basic setup.
Keywords: New Keynesian; Taylor Rule; regime switching; bifurcation analysis; structural stability. (search for similar items in EconPapers)
JEL-codes: C14 C22 E37 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac, nep-mon and nep-ore
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Working Paper: Structural Stability of the Generalized Taylor Rule (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:kan:wpaper:201404
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