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

Post-Print: Macroeconomic Dynamics, 17th January 2020, Pages 1-33. Doi.org/10.1017/S1365100519001032

33 Pages Posted: 19 May 2017 Last revised: 16 Feb 2020

See all articles by Jean-Bernard Chatelain

Jean-Bernard Chatelain

Paris School of Economics, Université Paris 1 Panthéon Sorbonne

Kirsten Ralf

Ecole Supérieure du Commerce Extérieur (ESCE)

Date Written: January 17, 2020

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: Bifurcations, Taylor rule, Taylor principle, new-Keynesian model, Ramsey optimal policy

JEL Classification: C61, C62, E43, E44, E47, E52, E58

Suggested Citation

Chatelain, Jean-Bernard and Ralf, Kirsten, Hopf Bifurcation from New-Keynesian Taylor Rule to Ramsey Optimal Policy (January 17, 2020). Post-Print: Macroeconomic Dynamics, 17th January 2020, Pages 1-33. Doi.org/10.1017/S1365100519001032, Available at SSRN: https://ssrn.com/abstract=2971227 or http://dx.doi.org/10.2139/ssrn.2971227

Jean-Bernard Chatelain (Contact Author)

Paris School of Economics, Université Paris 1 Panthéon Sorbonne ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

HOME PAGE: http://www.parisschoolofeconomics.eu/fr/chatelain-jean-bernard/

Kirsten Ralf

Ecole Supérieure du Commerce Extérieur (ESCE) ( email )

10 Rue Sextius Michel
Paris, 75015
France

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