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

Research output: Contribution to Journal/MagazineJournal articlepeer-review

<mark>Journal publication date</mark>31/10/2017
<mark>Journal</mark>Economics Letters
Number of pages6
Pages (from-to)82-87
Publication StatusPublished
Early online date30/06/17
<mark>Original language</mark>English


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.