Hopf Bifurcation from new-Keynesian Taylor rule to Ramsey Optimal Policy

Jean-Bernard Chatelain and Kirsten Ralf

MPRA Paper from University Library of Munich, Germany

Abstract: This paper shows that a shift from Ramsey optimal policy under short term commitment (based on a negative-feedback mechanism) to a Taylor rule (based on positive-feedback mechanism) in the new-Keynesian model is in fact a Hopf bifurcation, with opposite policy advice. The number of stable eigenvalues corresponds to the number of predetermined variables including the interest rate and its lag as policy instruments for Ramsey optimal policy. With a new-Keynesian Taylor rule, however, these policy instruments are arbitrarily assumed to be forward-looking variables when policy targets (inflation and output gap) are forward-looking variables. For new-Keynesian Taylor rule, this Hopf bifurcation implies a lack of robustness and multiple equilibria if public debt is not set to zero for all observation.

Keywords: Bifurcations; Taylor rule; Taylor principle; new-Keynesian model; Ramsey optimal policy; Finite horizon commitment (search for similar items in EconPapers)
JEL-codes: C61 C62 E43 E44 E47 E52 E58 (search for similar items in EconPapers)
Date: 2017-05-20
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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https://mpra.ub.uni-muenchen.de/79244/1/MPRA_paper_79244.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/81421/1/MPRA_paper_81421.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/98653/1/MPRA_paper_98653.pdf revised version (application/pdf)

Related works:
Journal Article: HOPF BIFURCATION FROM NEW-KEYNESIAN TAYLOR RULE TO RAMSEY OPTIMAL POLICY (2021)
Working Paper: Hopf Bifurcation from new-Keynesian Taylor rule to Ramsey Optimal Policy (2021)
Working Paper: Hopf Bifurcation from new-Keynesian Taylor rule to Ramsey Optimal Policy (2021)
Working Paper: Hopf Bifurcation from new-Keynesian Taylor rule to Ramsey Optimal Policy (2020)
Working Paper: Hopf Bifurcation from New-Keynesian Taylor Rule to Ramsey Optimal Policy (2020)
Working Paper: Hopf Bifurcation from New-Keynesian Taylor Rule to Ramsey Optimal Policy (2020)
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