Exploring the Determinacy Dynamics in an Open Economy
MPRA Paper from University Library of Munich, Germany
A crucial theme in macroeconomic dynamics concerns the issue of determinacy, that is, the question of uniqueness or multiplicity of admissible dynamic trajectories. Unlike previous studies which economy addressed this question in a closed, we explore the determinacy dynamics in a small open economy. The structure of the model set forth, is such that it leads to a higher degree characteristic equation which cannot be handled analytically. By using a specific algorithm developed, we solve it and show that a form of a Taylor rule implies, for the parameter space examined, determinate equilibrium dynamics. In line with previous findings on determinacy, the case for a form of flexible Price Level Targeting (PLT), does not only hold in a closed economy but, also, extends with some modification, to a small open economy as well.
Keywords: Taylor Rule; Open Economy Dynamics; Flexible PLT; Determinacy (search for similar items in EconPapers)
JEL-codes: C54 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-opm
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