Global and local determinacy in a one-step forward looking New Keynesian model

In this paper we consider a New Keynesian model for optimal monetary policy in a staggered fashion. We provide the relations of a non linear model of general economic equilibrium, implementing a suitable Taylor-type interest rate rule. We characterize the conditions that guarantee local determinacy and explore conditions under which local bifurcations of the target equilibrium may occur. Afterwards, we argue how local determinacy might be associated with global indeterminacy, providing some numerical examples.

Research Highlights► In this paper we provide a nonlinear New Keynesian model. ► We explore its determinacy implementing a Taylor-type rule. ► We illustrate the implications of the existence of a multiplicity of steady-states. ► We investigate the situations when local bifurcations can occur. ► In particular we characterize the conditions upon which a transcritical and a pitchfork bifurcation may occur.