A sunspot paradox

Resurrecting the New-Keynesian Model: (Un)Conventional Policy and the Taylor Rule

“…In this section we study local determinacy. This is relevant because the indeterminacy regions typically depend on the modelling frequency (Hintermaier, 2005). The findings for the discrete-time model with a presumed modelling frequency cannot simply be translated to different decision horizons, in particular to the continuous-time limit.…”

“…This is in sharp contrast to the approximation around zero inflation targets, hence the traditional requirement for active monetary policy is no longer sufficient. 23 Moreover, we know that determinacy regions are quite sensitive to the timing assumption (Hintermaier, 2005): For the continuous-time limit, a positive output response, φ y > 0 helps in the feedback model. To summarize, changing the inflation target is likely to have completely different implication than the nonlinear model (or its linearized version), compared to the linearized model around zero inflation target, because of the solution may exhibit multiple (sunspot) equilibria.…”

Discrete Versus Continuous Time in an Endogenous Growth Model with Durable Consumption

“…Leung [5] shows that models of uncertain lifetime yield different predictions on the consumption and savings trajectories depending on whether time is continuous or discrete. Hintermaier [6] finds that the local stability properties of dynamic general equilibrium may depend on the period length. Licandro and Puch [7] show that the discrete-time version is a true representation of the time-to-build neoclassical model in continuous time under some sufficient conditions.…”

Some Observations on the High‐frequency Versions of a Standard New‐keynesian Model

“… This is different in the high frequency versions of the Benhabib and Farmer () real business cycle model. Hintermaier () discusses a set of numerical parameters such that, for instance, the quarterly economy is determinate but not the weekly version, and Anagnostopoulos and Giannitsarou (, ) make a similar point; see, in particular, pp. 11–13 in their 2010 paper for an economic discussion of why determinacy may depend on the length of the adjustment period (jointly with a tax rate on labour). …”