A Simple Algorithm for Solving Ramsey Optimal Policy with Exogenous Forcing Variables

Chatelain, Jean–Bernard; Ralf, Kirsten

doi:10.2139/ssrn.3026988

Cited by 9 publications

(8 citation statements)

References 8 publications

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“…The contribution of this section is to use an intermediate step of Chatelain and Ralf's (2019a) algorithm in order to locate the full range of reduced form Taylor rule parameters of Ramsey optimal policy when varying the central bank preferences in the plane of Taylor rule parameters.…”

Section: Ramsey Optimal Policymentioning

confidence: 99%

Hopf Bifurcation From New-Keynesian Taylor Rule to Ramsey Optimal Policy

Chatelain¹,

Ralf²

2020

Macroecon. Dynam.

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This paper compares different implementations of monetary policy in a new-Keynesian setting. We can show that a shift from Ramsey optimal policy under short-term commitment (based on a negative feedback mechanism) to a Taylor rule (based on a positive feedback mechanism) corresponds to a Hopf bifurcation with opposite policy advice and a change of the dynamic properties. This bifurcation occurs because of the ad hoc assumption that interest rate is a forward-looking variable when policy targets (inflation and output gap) are forward-looking variables in the new-Keynesian theory.JEL classification numbers: C61, C62, E43, E44, E47, E52, E58.

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Section: Ramsey Optimal Policymentioning

confidence: 99%

Hopf Bifurcation From New-Keynesian Taylor Rule to Ramsey Optimal Policy

Chatelain¹,

Ralf²

2020

Macroecon. Dynam.

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“…The disturbances u;t are identically and independently distributed (i.i.d.) according to a normal distribution with constant variance 2 u . The reduced-form parameter (denoted ) of the slope of the new-Keynesian Phillips curve relates in ‡ation to marginal cost or to the output gap.…”

Section: New-keynesian Phillips Curvementioning

confidence: 99%

Imperfect Credibility versus No Credibility of Optimal Monetary Policy

Chatelain

Ralf

2020

Revue Économique

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A minimal central bank credibility, with a non-zero probability of not renegning his commitment ("quasi-commitment"), is a necessary condition for anchoring inflation expectations and stabilizing inflation dynamics. By contrast, a complete lack of credibility, with the certainty that the policy maker will renege his commitment ("optimal discretion"), leads to the local instability of inflation dynamics. In the textbook example of the new-Keynesian Phillips curve, the response of the policy instrument to inflation gaps for optimal policy under quasi-commitment has an opposite sign than in optimal discretion, which explains this bifurcation.

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“…where denotes the auto-correlation parameter and " t an exogenous shock, identically and independently distributed (i.i.d.) following a normal distribution with constant variance 2 " . The transmission mechanism can be written:…”

Section: Policy Transmission Mechanismmentioning

confidence: 99%

Policy Maker’s Credibility with Predetermined Instruments for Forward-Looking Targets

Chatelain¹,

Ralf²

2020

Revue d'Économie Politique

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The aim of the present paper is to provide criteria for a central bank of how to choose among di¤erent monetary-policy rules when caring about a number of policy targets such as the output gap and expected in ‡ation. Special attention is given to the question if policy instruments are predetermined or only forward looking. Using the new-Keynesian Phillips curve with a cost-push-shock policy-transmission mechanism, the forward-looking case implies an extreme lack of robustness and of credibility of stabilization policy. The backward-looking case is such that the simple-rule parameters can be the solution of Ramsey optimal policy under limited commitment. As a consequence, we suggest to model explicitly the rational behavior of the policy maker with Ramsey optimal policy, rather than to use simple rules with an ambiguous assumption leading to policy advice that is neither robust nor credible.

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A Simple Algorithm for Solving Ramsey Optimal Policy with Exogenous Forcing Variables

Cited by 9 publications

References 8 publications

Hopf Bifurcation From New-Keynesian Taylor Rule to Ramsey Optimal Policy

Hopf Bifurcation From New-Keynesian Taylor Rule to Ramsey Optimal Policy

Imperfect Credibility versus No Credibility of Optimal Monetary Policy

Policy Maker’s Credibility with Predetermined Instruments for Forward-Looking Targets

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