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HOPF BIFURCATION FROM NEW-KEYNESIAN TAYLOR RULE TO RAMSEY OPTIMAL POLICY

Published online by Cambridge University Press:  17 January 2020

Jean-Bernard Chatelain  and
Kirsten Ralf
Jean-Bernard Chatelain*
Affiliation:
Paris School of Economics
Kirsten Ralf
Affiliation:
Inseec U. Research Center ESCE
*
Address correspondence to: Jean-Bernard Chatelain, Paris School of Economics, Université Paris 1 Pantheon Sorbonne, 48 Boulevard Jourdan, 75014 Paris, France. e-mail: jean-bernard.chatelain@univ-paris1.fr.
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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.

Keywords

BifurcationsTaylor RuleTaylor PrincipleNew-Keynesian ModelRamsey Optimal Policy

Information

Type
Articles
Information
Macroeconomic Dynamics , Volume 25 , Issue 8 , December 2021 , pp. 2204 - 2236
Copyright
© Cambridge University Press 2020

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