Price indexation, habit formation, and the Generalized Taylor Principle
Vol:
52/2013
Year:
2013
Month:
August
Abstract:
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.
Publication file:
Updated: 29 October 2024/Responsible Officer: Crawford Engagement/Page Contact: CAMA admin