Working Paper: NBER ID: w14770
Authors: Jess Benhabib
Abstract: When monetary policy is subject to regime switches conditions for determinacy become more complex. Davig and Leeper (2007) and Farmer, Waggoner and Zha (2009a) have studied such conditons. Using some new results from stochastic processes, we characterize the moments of the stationary distribution of inflation under regime switiching to obtain conditions for indeterminacy that can be easily checked and interpreted in terms of expected values of Taylor coefficients. In the last section, we outline methods to compute the moments of stationary distributions in regime switching models of higher dimensions.
Keywords: No keywords provided
JEL Codes: E31; E43; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Active Taylor rules (C22) | Determinacy in inflation (E31) |
| Passive rules (Y20) | Indeterminacy in inflation (E31) |
| Transition probabilities of monetary policy regimes (E63) | Moments of the stationary distribution of inflation (E31) |
| Taylor principle conditions (C61) | Existence of bounded solutions to the inflation equation (E31) |