Determinacy analysis in high order dynamic systems: The case of nominal rigidities and limited asset market participation

We show how to use Hurwitz polynomials to study the stability and uniqueness of Rational Expectation equilibria (REE) in Dynamic General Equilibrium models (DGE). We apply this method to a model characterized by sticky wages and prices and by limited asset market participation (LAMP). We prove analy...

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Bibliographic Details
Published in:Economics letters 2017-10, Vol.159, p.82-87
Main Authors: Ascari, Guido, Colciago, Andrea, Rossi, Lorenza
Format: Article
Language:English
Subjects:
Assets
Determinacy
Equilibrium
High-order dynamics
Market equilibrium
Non-Ricardian household
Polynomials
Prices
Securities markets
Sticky wages
Studies
Uniqueness
Wages & salaries
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Summary:We show how to use Hurwitz polynomials to study the stability and uniqueness of Rational Expectation equilibria (REE) in Dynamic General Equilibrium models (DGE). We apply this method to a model characterized by sticky wages and prices and by limited asset market participation (LAMP). We prove analytically in a fourth-order dynamics system that, once nominal wage stickiness is taken into account, LAMP does not invalidate the Taylor Principle.
ISSN:0165-1765
1873-7374
DOI:10.1016/j.econlet.2017.05.040