Barnett, William A. and Eryilmaz, Unal (2022): Monetary Policy and Determinacy: An Inquiry in Open Economy New Keynesian Framework.

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Abstract
We analyze determinacy in the baseline openeconomy New Keynesian model developed by Gali and Monacelli (2005). We find that the open economy structure causes multifaceted behaviors in the system creating extra challenges for policy making. The degree of openness significantly affects determinacy properties of equilibrium under various forms and timing of monetary policy rules. Conditions for the uniqueness and local stability of equilibria are established. Determinacy diagrams are constructed to display the regions of unique and multiple equilibria. Numerical analyses are performed to confirm the theoretical results. Limit cycles and periodic behaviors are possible, but in some cases only for unrealistic parameter settings. Complex structures of open economies require rigorous policy design to achieve optimality.
Item Type:  MPRA Paper 

Original Title:  Monetary Policy and Determinacy: An Inquiry in Open Economy New Keynesian Framework 
Language:  English 
Keywords:  bifurcation; determinacy; dynamic systems; New Keynesian; stability; open economy; Taylor Principle 
Subjects:  C  Mathematical and Quantitative Methods > C1  Econometric and Statistical Methods and Methodology: General > C14  Semiparametric and Nonparametric Methods: General C  Mathematical and Quantitative Methods > C2  Single Equation Models ; Single Variables > C22  TimeSeries Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes C  Mathematical and Quantitative Methods > C5  Econometric Modeling > C52  Model Evaluation, Validation, and Selection C  Mathematical and Quantitative Methods > C6  Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61  Optimization Techniques ; Programming Models ; Dynamic Analysis 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 > E3  Prices, Business Fluctuations, and Cycles > E32  Business Fluctuations ; Cycles E  Macroeconomics and Monetary Economics > E3  Prices, Business Fluctuations, and Cycles > E37  Forecasting and Simulation: Models and Applications E  Macroeconomics and Monetary Economics > E6  Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E61  Policy Objectives ; Policy Designs and Consistency ; Policy Coordination L  Industrial Organization > L1  Market Structure, Firm Strategy, and Market Performance > L16  Industrial Organization and Macroeconomics: Industrial Structure and Structural Change ; Industrial Price Indices 
Item ID:  111567 
Depositing User:  William A. Barnett 
Date Deposited:  17 Jan 2022 06:35 
Last Modified:  17 Jan 2022 06:35 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/111567 