Gomes, Orlando (2007): Stability analysis in a monetary model with a varying intertemporal elasticity of substitution.
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Models dealing with monetary policy are generally based on microfoundations that characterize the behaviour of representative agents (households and firms). To explain the representative consumer behaviour, it is generally assumed a utility function in which the intertemporal elasticity of substitution is constant. Recent literature casts some doubts about the relevance of considering such a constant elasticity value. In this note, we explore the new Keynesian monetary policy model under the assumption that the elasticity of substitution changes with expectations regarding real economic performance. As a result, one observes that some combinations of parameter values allow for a stable fixed point outcome, while other combinations of parameters are compatible with cycles of various periodicities and even a-periodic fluctuations.
|Item Type:||MPRA Paper|
|Institution:||Escola Superior de Comunicação Social - Instituto Politécnico de Lisboa|
|Original Title:||Stability analysis in a monetary model with a varying intertemporal elasticity of substitution|
|Keywords:||Monetary policy; Intertemporal elasticity of substitution; Stability; Nonlinear dynamics|
|Subjects:||C - Mathematical and Quantitative Methods > C6 - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling > C62 - Existence and Stability Conditions of Equilibrium
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
|Depositing User:||Orlando Gomes|
|Date Deposited:||24. Apr 2007|
|Last Modified:||18. Feb 2013 15:10|
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