Discretionary Policy and Multiple Equilibria in LQ RE Models
36 Pages Posted: 9 Nov 2006 Last revised: 20 Nov 2011
Date Written: November 18, 2011
Abstract
We study stationary discretionary equilibria in dynamic linear-quadratic rational expectations models. Past papers have assumed that this is uniquely determined; we show that such models can have multiple equilibria in some situations. We demonstrate the existence of multiple discretionary equilibria using a number of examples of increasing complexity, and discuss their potential to explain interesting economic phenomena. We investigate the general properties of discretionary equilibria and discuss the design implications for the numerical algorithms needed to find them.
Keywords: Time Consistency, Discretion, Multiple Equilibria, LQ RE models
JEL Classification: E31, E52, E58, E61, C61
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Monetary Discretion, Pricing Complementarity, and Dynamic Multiple Equilibria
-
Expectation Traps and Monetary Policy
By Stefania Albanesi, Varadarajan V. Chari, ...
-
Expectation Traps and Monetary Policy
By Stefania Albanesi, Varadarajan V. Chari, ...
-
Monetary Discretion, Pricing Complementarity and Dynamic Multiple Equilibria
-
Monetary Discretion, Pricing Complementarity and Dynamic Multiple Equilibria
-
Monetary Discretion, Pricing Complementarity and Dynamic Multiple Equilibria
-
Should Optimal Discretionary Monetary Policy Look at Money?
By Michael Dotsey and Andreas Hornstein
-
Bank Runs and Institutions: The Perils of Intervention
By Huberto M. Ennis and Todd Keister