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


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Generalizing the Taylor Principle: Comment

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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


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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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

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