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Determinacy analysis in high order dynamic systems: The case of nominal rigidities and limited asset market participation

Abstract:
We show how to use Hurwitz polynomials to study the stability and uniqueness of Rational Expectation equilibria (REE) in Dynamic General Equilibrium models (DGE). We apply this method to a model characterized by sticky wages and prices 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.
Publication status:
Published
Peer review status:
Peer reviewed
Version:
Accepted Manuscript

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Publisher copy:
10.1016/j.econlet.2017.05.040

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Institution:
University of Oxford
Division:
Social Sciences Division
Department:
Economics
Oxford college:
Somerville College
Role:
Author
ORCID:
0000-0002-5037-1964
Publisher:
Elsevier Publisher's website
Journal:
Economics Letters Journal website
Volume:
159
Pages:
82-87
Publication date:
2017-06-30
Acceptance date:
2017-05-31
DOI:
ISSN:
0165-1765
Pubs id:
pubs:939826
URN:
uri:efb4a333-fb9c-4f22-bfa2-a2a3d6847075
UUID:
uuid:efb4a333-fb9c-4f22-bfa2-a2a3d6847075
Local pid:
pubs:939826

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