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Publication Detailed Description
Stability analysis in a monetary model with a varying intertemporal elasticity of substitution
Journal Title
The ICFAI Journal of Monetary Economics
Year (definitive publication)
2009
Language
English
Country
India
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Abstract
Models dealing with monetary policy are generally based on microfoundations
that characterize the behaviour of representative agents (households and firms). To explain
the representative consumer behaviour, it is generally assumed a utility function in which
the intertemporal elasticity of substitution is constant. Recent literature casts some doubts
about the relevance of considering such a constant elasticity value. In this note, we explore
the new Keynesian monetary policy model under the assumption that the elasticity of
substitution changes with expectations regarding real economic performance. As a result,
one observes that some combinations of parameter values allow for a stable fixed point
outcome, while other combinations of parameters are compatible with cycles of various
periodicities and even a-periodic fluctuations.
Acknowledgements
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Keywords
Monetary policy,Intertemporal elasticity of substitution,Stability,Nonlinear dynamics
Funding Records
Funding Reference | Funding Entity |
---|---|
POCTI/ECO/48628/2002 | Fundação para a Ciência e a Tecnologia |