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Stability analysis in a monetary model with a varying intertemporal elasticity of substitution

Orlando Gomes ()

MPRA Paper from University Library of Munich, Germany

Abstract: Models dealing with monetary policy are generally based on microfoundations that characterize the behaviour of representative agents (households and firms). To explain the representative consumer behaviour, it is generally assumed 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 note, we explore the new Keynesian monetary policy model 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 a-periodic fluctuations.

Keywords: Monetary policy; Intertemporal elasticity of substitution; Stability; Nonlinear dynamics (search for similar items in EconPapers)
JEL-codes: C62 E32 E52 (search for similar items in EconPapers)
Date: 2007-04
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Related works:
Journal Article: Stability Analysis in a Monetary Model With a Varying Intertemporal Elasticity of Substitution (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:2890

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