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American Economic Review: Vol. 100 No. 1 (March 2010)

AER Volume. 100, Issue 1 | Previous ArticleNext Article

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Generalizing the Taylor Principle: Comment

Article Citation

Farmer, Roger E. A., Daniel F. Waggoner, and Tao Zha. 2010. "Generalizing the Taylor Principle: Comment." American Economic Review, 100(1): 608-17.

DOI: 10.1257/aer.100.1.608

Abstract

Troy Davig and Eric Leeper (2007) have proposed a condition they call the generalized Taylor principle to rule out indeterminate equilibria in a version of the new-Keynesian model where the parameters of the policy rule follow a Markov-switching process. We show that although their condition rules out a subset of indeterminate equilibria, it does not establish uniqueness of the fundamental equilibrium. We discuss the differences between indeterminate fundamental equilibria included by Davig and Leeper's condition and fundamental equilibria that their condition misses. (E12, E31, E43, E52)

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Authors

Farmer, Roger E. A. (UCLA)
Waggoner, Daniel F. (Federal Reserve Bank of Atlanta)
Zha, Tao (Federal Reserve Bank of Atlanta and Emory U)

JEL Classifications

E12: General Aggregative Models: Keynes; Keynesian; Post-Keynesian
E31: Price Level; Inflation; Deflation
E43: Interest Rates: Determination, Term Structure, and Effects
E52: Monetary Policy