of μ > 1 provided condition (28) is violated. However the region of indeterminacy is small.
For example if ψ = 0.8 then indeterminacy arises provided 1.1 < μ < 1.71, whereas if
ψ = 0.75 condition (28) is satisfied ∀μ > 1 and thus indeterminacy is not possible.
3.2 Difference System
3.2.1 Domestic Price Inflation
If domestic price inflation is the policy indicator, then the set of linearized conditions for
cross-country differences yields a system of the form:
EtbtR+1 |
= APRP I btR, |
btR |
R = mncct |
XR ∏R(h-f*) KKR | ||
1 — α(2a — 1) + Λ1 J1 |
α2 |
(2a — 1) — α |
(μ |
— β ) J1 |
0 | |
AR ≡ APPI ≡ |
-(2a - 1) + λ1 J2 |
α(2a — 1) |
(μ |
— β ) J2 |
0 | |
Λ1 |
0 |
1 |
0 | |||
— [σ(2a — 1) C + ' |
) K ] |
J3 |
0 |
1 + C + δ2(1-a) 1 + (2a-1) . |
where Ji = [1 + a(1-^2(2a-1)] J2 = (1-Л2Х2а-1) and J3 = (⅛-⅝ K [1 + α4θa(1 - a)] +
σα(2a — 1) C. As before, the capital stock dynamics can be decoupled from the rest of the
system. However, the eigenvalue associated with the capital stock dynamics now depends
on the degree of trade openness. Consequently this eigenvalue can be either inside or
outside the unit circle depending on the value of a. The Appendix proves the following:13
Proposition 2 Suppose that monetary policy reacts to current-looking domestic price
inflation. Then for an active monetary policy (μ > 1), the necessary and sufficient con-
ditions for determinacy of the difference system are:
(Case I) a > 0.5 and either
(2β- 1)Λ2 < Λ1 [1 -β(1 - δ)(1 - (2a- 1)α)]
(29)
or
/'λ∙i ΓΛ4(μ - 1) . , . . .
Λ2β ` + λ- - <1 + λ∙ + ^'e)
+ (1 — β) + Λιμ + —— > 0;
Λ2
(30)
13While determinacy of the difference system can also be achieved under a passive monetary policy (μ < 1),
such conditions are not reported since the aggregate system is always indeterminate (from Proposition
1).
14
More intriguing information
1. Making International Human Rights Protection More Effective: A Rational-Choice Approach to the Effectiveness of Ius Standi Provisions2. Commuting in multinodal urban systems: An empirical comparison of three alternative models
3. THE CHANGING STRUCTURE OF AGRICULTURE
4. The name is absent
5. Partner Selection Criteria in Strategic Alliances When to Ally with Weak Partners
6. The name is absent
7. The name is absent
8. The Challenge of Urban Regeneration in Deprived European Neighbourhoods - a Partnership Approach
9. Une Gestion des ressources humaines à l'interface des organisations : vers une GRH territoriale ?
10. The duration of fixed exchange rate regimes