TY  - JOUR
AU  - Farmer,Roger E.A.
AU  - Waggoner,Daniel F.
AU  - Zha,Tao
TI  - Understanding the New-Keynesian Model when Monetary Policy Switches Regimes
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12965
PY  - 2007
Y2  - March 2007
UR  - http://www.nber.org/papers/w12965
L1  - http://www.nber.org/papers/w12965.pdf
N1  - Author contact info:
Roger Farmer
UCLA
Department of Economics
Box 951477
Los Angeles, CA 90095-1477
Tel: 310/825-6547
Fax: 310/825-9528
E-Mail: rfarmer@econ.ucla.edu

Daniel F. Waggoner
Federal Reserve Bank of Atlanta
1000 Peachtree Street N.E.
Atlanta, Georgia 30309-4470
E-Mail: dwaggoner@frbatlanta.org

Tao Zha
Emory University
1602 Fishburne Drive
Atlanta, GA 30322-2240
Tel: 404/723-3254
Fax: 404/727-4639
E-Mail: tzha@emory.edu
AB  - This paper studies a New-Keynesian model in which monetary policy may switch between regimes.  We derive sufficient conditions for indeterminacy that are easy to implement and we show that the necessary and sufficient condition for determinacy, provided by Davig and Leeper, is necessary but not sufficient. More importantly, we use a two-regime model to show that indeterminacy in a passive regime may spill over to an active regime, no matter how active the latter regime is.  As a result, a passive monetary policy is more damaging than has been previously thought. Our results imply that the propagation of shocks in an active regime, such as that of the Federal Reserve in the post-1982 period, may be substantially affected by the possibility of a return to a passive regime of the kind that was followed in the 1960s and 1970s.
ER  -