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

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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Contributor : Jean-Bernard Chatelain <>
Submitted on : Monday, February 17, 2020 - 5:18:59 PM
Last modification on : Tuesday, January 19, 2021 - 11:08:58 AM
Long-term archiving on: : Monday, May 18, 2020 - 12:30:48 PM

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Jean-Bernard Chatelain, Kirsten Ralf. Hopf Bifurcation from new-Keynesian Taylor rule to Ramsey Optimal Policy. Macroeconomic Dynamics, Cambridge University Press (CUP), 2020, ⟨10.1017/S1365100519001032⟩. ⟨hal-01527872v2⟩

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