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Hopf Bifurcation from New-Keynesian Taylor Rule to Ramsey Optimal Policy

Authors
  • Chatelain, Jean-Bernard
  • Ralf, Kirsten
Publication Date
Apr 01, 2018
Source
HAL-UPMC
Keywords
Language
English
License
Unknown
External links

Abstract

This paper compares different implementations of monetary policy in a new- Keynesian setting. We can show that a shift from Ramsey optimal policy under short term commitment (based on a negative-feed back mechanism) to a Taylor rule (based on a positive-feed back mechanism) corresponds to a Hopfbifurcation with opposite policy advice and a change of the dynamic properties. This bifurcation occurs because of the ad hoc assumption that interest rate is a forward-looking variable when policy targets (inflation and out put gap) a reforward-looking variables in the new-Keynesian theory.

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