Nonlinear Inflation Expectations and Endogenous Fluctuations

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Title:Nonlinear Inflation Expectations and Endogenous Fluctuations
Creators:
Gomes, Orlando
Journal or Publication Title:
AUCO Czech Economic Review, 4, 3, pp. 263-281
Uncontrolled Keywords:Monetary policy, Taylor rule, inflation expectations, endogenous business cycles, nonlinear dynamics and chaos

Abstract

The standard new Keynesian monetary policy problem is presentable as a set of linearized equations, for values of endogenous variables relatively close to their steady-state. As a result, only three possibilities are admissible in terms of long-term dynamics: the equilibrium may be a stable node, an unstable node or a saddle point. Fixed point stability (a stable node) is generally guaranteed for an active monetary policy rule. The benchmark model also considers extremely simple assumptions about expectations (perfect foresight is frequently assumed). In this paper, one inquires how a change in the way inflation expectations are modelled implies a change in monetary policy results, when an active Taylor rule is considered. By assuming that inflation expectations are constrained by the evolution of the output gap, we radically modify the implications of policy intervention: endogenous cycles, of various periodicities, and chaotic motion will be observable for reasonable parameter values.

Official URL: http://www.ceeol.com/aspx/issuedetails.aspx?issueid=003C3073-C371-49F5-B661-7B172CE96EF6&articleid=FC2AC384-AA08-41AA-AF23-69D8AF3B96EF

Title:Nonlinear Inflation Expectations and Endogenous Fluctuations
Creators:
Gomes, Orlando
Uncontrolled Keywords:Monetary policy, Taylor rule, inflation expectations, endogenous business cycles, nonlinear dynamics and chaos
Subjects:H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
H Social Sciences > HF Commerce
Divisions:Section of external journals > AUCO Czech Economic Review
Journal or Publication Title:AUCO Czech Economic Review
Volume:4
Number:3
Page Range:pp. 263-281
ISSN:1802-4696
Publisher:Charles University
Related URLs:
URLURL Type
http://auco.cuni.czPublisher
http://avi.lib.cas.cz/node/183Publisher
ID Code:6310
Item Type:Article
Deposited On:01 Dec 2010 18:09
Last Modified:01 Dec 2010 17:09

Citation

Gomes, Orlando (2010) Nonlinear Inflation Expectations and Endogenous Fluctuations. AUCO Czech Economic Review, 4 (3). pp. 263-281. ISSN 1802-4696

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