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Capital accumulation, sectoral heterogeneity and the Taylor principle

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  • Sveen, Tommy

Abstract

In the presence of capital accumulation the Taylor principle may not be sufficient for determinacy under reasonable parameter values. In this paper I consider a two-sector extension of the models used in the existing literature. I show that what matters for whether the Taylor principle is sufficient is the price stickiness of investment goods. Price stickiness of consumer goods on the other hand matters very little. The Taylor principle is sufficient, I find, unless there is considerable price stickiness in the investment-goods sector.

Suggested Citation

  • Sveen, Tommy, 2014. "Capital accumulation, sectoral heterogeneity and the Taylor principle," Journal of Economic Dynamics and Control, Elsevier, vol. 44(C), pages 20-28.
    • Handle: RePEc:eee:dyncon:v:44:y:2014:i:c:p:20-28
    DOI: 10.1016/j.jedc.2014.04.007
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    1. Justiniano, Alejandro & Primiceri, Giorgio E. & Tambalotti, Andrea, 2010. "Investment shocks and business cycles," Journal of Monetary Economics, Elsevier, vol. 57(2), pages 132-145, March.
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    19. Carvalho Carlos, 2006. "Heterogeneity in Price Stickiness and the Real Effects of Monetary Shocks," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(1), pages 1-58, December.
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    Cited by:

    1. Susanto Basu & Pierre De Leo, 2016. "Should Central Banks Target Investment Prices?," Boston College Working Papers in Economics 910, Boston College Department of Economics, revised 04 May 2017.

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    More about this item

    Keywords

    The Taylor principle; Sectoral heterogeneity;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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