Determinacy Analysis in High Order Dynamic Systems: The Case of Nominal Rigidities and Limited Asset Market Participation
24 Pages Posted: 25 Apr 2016
There are 2 versions of this paper
Determinacy Analysis in High Order Dynamic Systems: The Case of Nominal Rigidities and Limited Asset Market Participation
Date Written: April 21, 2016
Abstract
We show how to use Hurwitz polynomials to study the stability and uniqueness of Rational Expectation equilibria in Dynamic General Equilibrium models. We apply this method to a model characterized by staggered wage and price contracts and by limited asset market participation (LAMP). We prove analytically in a fourth-order dynamics system that, once nominal wage stickiness is taken into account, LAMP does not invalidate the Taylor Principle: for any plausible degree of asset market participation an active interest rate rule ensures the uniqueness of the rational expectation equilibrium.
Keywords: determinacy, high-order dynamics, sticky wages, non-Ricardian household
JEL Classification: C62, E50
Suggested Citation: Suggested Citation
Here is the Coronavirus
related research on SSRN
