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arXiv · 2002.07479

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

Jean-Bernard Chatelain·Kirsten Ralf
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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 feedback mechanism) to a Taylor rule (based on a positive feedback mechanism) corresponds to a Hopf bifurcation 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 output gap) are forward-looking variables in the new-Keynesian theory.

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Jean-Bernard Chatelain, Kirsten Ralf. 2020-02-18. Hopf Bifurcation from new-Keynesian Taylor rule to Ramsey Optimal Policy. https://doi.org/10.1017/s1365100519001032

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