Chaotic dynamics in optimal monetary policy |
| |
Authors: | O Gomes V M Mendes D A Mendes J Sousa Ramos |
| |
Institution: | (1) Institute Polytechnic of Lisbon, ESCS, and UNIDE - ISCTE, 1649-026 Lisbon, Portugal;(2) Dep. of Economics, ISCTE and UNIDE, 1649-026 Lisbon, Portugal;(3) Dep. of Quantitative Methods, IBS-ISCTE Business School and UNIDE, 1649-189 Lisbon, Portugal;(4) Dep. of Mathematics, IST, Technical University of Lisbon, 1049-001 Lisbon, Portugal |
| |
Abstract: | There is by now a large consensus in modern monetary policy. This consensus has
been built upon a dynamic general equilibrium model of optimal monetary policy as
developed by, e.g., Goodfriend and King NBER Macroeconomics
Annual 1997 edited by B. Bernanke and J. Rotemberg (Cambridge, Mass.: MIT Press, 1997), pp. 231–282],
Clarida et al. J. Econ. Lit. 37, 1661 (1999)],
Svensson J. Mon. Econ. 43, 607 (1999)]
and Woodford Interest and Prices: Foundations of a
Theory of Monetary Policy (Princeton, New Jersey, Princeton University
Press, 2003)].
In this paper we extend the standard optimal monetary policy model by introducing nonlinearity into the Phillips curve.
Under the specific form of nonlinearity proposed in our paper (which allows for convexity and concavity and secures
closed form solutions), we show that the introduction of a nonlinear Phillips curve into the structure of the standard
model in a discrete time and deterministic framework produces radical changes to the major conclusions regarding
stability and the efficiency of monetary policy.
We emphasize the following main results: (i) instead of a unique fixed point we end up with multiple equilibria; (ii) instead
of saddle-path stability, for different sets of parameter values we may have saddle stability, totally unstable
equilibria and chaotic attractors; (iii) for certain degrees of convexity and/or concavity of the Phillips curve, where
endogenous fluctuations arise, one is able to encounter various results that seem intuitively correct. Firstly, when the
Central Bank pays attention essentially to inflation targeting, the inflation rate has a lower mean and
is less volatile; secondly, when the degree of price stickiness is high, the inflation
rate displays a larger mean and higher volatility (but this is sensitive to the values
given to the parameters of the model); and thirdly, the higher the target value of the
output gap chosen by the Central Bank, the higher is the inflation rate and its
volatility. |
| |
Keywords: | 89 95 Gh 05 45 -a Nonlinear dynamics and chaos 05 45 Ac Low-dimensional chaos |
本文献已被 SpringerLink 等数据库收录! |
|