Troy Davig and Eric Leeper (2007) have proposed a condition they call the generalized Taylor principle to rule out indeterminate equilibria in a version of the new-Keynesian model where the parameters of the policy rule follow a Markov-switching process. We show that although their condition...

Because of limited knowledge about how the actual, complex economy operates, policymakers depend on models for understanding its workings. For models to be usable for evaluating monetary policy effects, modelers must recognize that fluctuations or shocks in the actual economy are often driven by...

The question of the quantitative effect of monetary policy has been of considerable debate for decades. Economists' beliefs about it stem largely from theoretical models that imply the effects of changing monetary policy, and different experiments or theories lead to different conclusions. The...

Monetary policy analysts looking for a model on which to base decisions may consider two popular approaches-the New Keynesian (NK) and the identified vector autoregression (VAR) approaches. Choosing between the two can be difficult: NK models are stylized and have simple rules while structural...