American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Generalizing the Taylor Principle: Reply
American Economic Review
vol. 100,
no. 1, March 2010
(pp. 618–24)
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)Citation
Davig, Troy, and Eric M. Leeper. 2010. "Generalizing the Taylor Principle: Reply." American Economic Review, 100 (1): 618–24. DOI: 10.1257/aer.100.1.618JEL Classification
- E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian
- E31 Price Level; Inflation; Deflation
- E43 Interest Rates: Determination, Term Structure, and Effects
- E52 Monetary Policy