Price indexation, habit formation, and the Generalized Taylor Principle

Saroj Bhattarai; Jae Won Lee; Woong Yong Park

doi:10.1016/j.jedc.2014.09.022

Price indexation, habit formation, and the Generalized Taylor Principle

Saroj Bhattarai, Jae Won Lee, Woong Yong Park

Economics

Research output: Contribution to journal › Article › peer-review

Abstract

We prove that the Generalized Taylor Principle, under which the nominal interest rate reacts more than one-for-one to a change in inflation in the long run, is a necessary and (under some extra mild restrictions on parameters) sufficient condition for determinacy in a sticky price model with interest rate smoothing in monetary policy, partial dynamic price indexation, and habit formation in consumption.

Original language	English (US)
Pages (from-to)	218-225
Number of pages	8
Journal	Journal of Economic Dynamics and Control
Volume	48
DOIs	https://doi.org/10.1016/j.jedc.2014.09.022
State	Published - Nov 1 2014

Keywords

Determinacy
Generalized Taylor Principle
Habit formation
Price indexation
Sticky prices

ASJC Scopus subject areas

Economics and Econometrics
Control and Optimization
Applied Mathematics

Online availability

10.1016/j.jedc.2014.09.022

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AB - We prove that the Generalized Taylor Principle, under which the nominal interest rate reacts more than one-for-one to a change in inflation in the long run, is a necessary and (under some extra mild restrictions on parameters) sufficient condition for determinacy in a sticky price model with interest rate smoothing in monetary policy, partial dynamic price indexation, and habit formation in consumption.

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ER -

Price indexation, habit formation, and the Generalized Taylor Principle

Abstract

Keywords

ASJC Scopus subject areas

Online availability

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