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American Economic Review: Vol. 100 No. 1 (March 2010)
AER Volume. 100, Issue 1 | 
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Generalizing the Taylor Principle: Reply
Article Citation
Davig, Troy, and
Eric M. Leeper. 2010. "Generalizing the Taylor Principle: Reply."
American Economic Review,
100(1): 618-24.
DOI: 10.1257/aer.100.1.618
DOI: 10.1257/aer.100.1.618
Abstract
Farmer, Waggoner, and Zha (2009) (FWZ) show that a new Keynesian model with regime-switching monetary policy can support multiple solutions, appearing to contradict findings in Davig and Leeper (2007) (DL). The explanation is straightforward: FWZ derive solutions using a model that differs from the one to which the DL conditions apply. The FWZ solutions also require that the exogenous driving process is a function of private and policy parameters. This undermines the sharp distinctions among "deep parameters" typical of optimizing models and makes it difficult to ascribe economic interpretations to FWZ's additional solutions. (E12, E31, E43, E52)
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Authors
Davig, Troy (Federal Reserve Bank of Kansas City)
Leeper, Eric M. (IN U)
Leeper, Eric M. (IN 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
E31: Price Level; Inflation; Deflation
E43: Interest Rates: Determination, Term Structure, and Effects
E52: Monetary Policy
