Ruhr Economic Papers

Ruhr Economic Papers #726

Endogenous Growth and the Taylor Principle

by Martin Micheli

RWI, 12/2017, 10 S./p., 8 Euro, ISBN 978-3-86788-846-2 DOI: 10.4419/86788846

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Abstract

This paper analyzes conditions for determinacy in a new Keynesian model with endogenous growth. Endogenous growth shrinks the determinacy region considerably. Complying with the Taylor principle is not sufficient for determinacy, which decreases in the spillovers from actual on potential output. Monetary policy therefore has to be more aggressive than in an exogenous growth setup to ensure determinacy.

JEL-Classification: E32, E52, O42

Keywords: Endogenous growth; business cycle; monetary policy; Taylor principle

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