Federal Reserve Bank of Dallas
Globalization Institute Working Papers
Price indexation, habit formation, and the Generalized Taylor Principle
We prove that the Generalized Taylor Principle, under which the nominal interest rate reacts more than one-for-one to inflation in the long run, is a necessary and (under some extra mild restrictions on parameters) sufficient condition for determinacy in a sticky price model with positive steady-state inflation, interest rate smoothing in monetary policy, partial dynamic price indexation, and habit formation in consumption.
Cite this item
Saroj Bhattarai & Jae Won Lee & Woong Yong Park, Price indexation, habit formation, and the Generalized Taylor Principle, Federal Reserve Bank of Dallas, Globalization Institute Working Papers 152, 2013.
Note: Published as: Bhattarai, Saroj, Jae Won Lee and Woong Yong Park (2014), "Price Indexation, Habit Formation, and the Generalized Taylor Principle," Journal of Economic Dynamics and Control 48: 218-225.
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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