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Federal Reserve Bank of Atlanta
FRB Atlanta Working Paper
Generalizing the Taylor principle: comment
Roger E. A. Farmer
Daniel F. Waggoner
Tao Zha
Abstract

Davig and Leeper (2007) have proposed a condition they call the generalized Taylor principle to rule out indeterminate equilibria in a version of the New Keynesian model, where the parameters of the policy rule follow a Markov-switching process. We show that although their condition rules out a subset of indeterminate equilibria, it does not establish uniqueness of the fundamental equilibrium. We discuss the differences between indeterminate fundamental equilibria included by Davig and Leeper's condition and fundamental equilibria that their condition misses.


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Roger E. A. Farmer & Daniel F. Waggoner & Tao Zha, Generalizing the Taylor principle: comment, Federal Reserve Bank of Atlanta, FRB Atlanta Working Paper 2008-19, 2008.
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Keywords: Equilibrium (Economics)
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