Close-form Solutions of A Dynamic Monetary Model

Overview

Abstract

This talk is devoted to the study of a monetary model proposed by Rotemberg (Journal of Political Economy, 1984). Rotemberg’s model provided a general dynamic structure for investigating government intervention in the open market operation and it has inspired the development of many other models in related fields. 

This talk concerns a very basic theoretical question on the model, namely the existence and the uniqueness of the equilibrium, which has been an open problem since the publication of Rotemberg’s original paper. This question was partially addressed by Rotemberg by analyzing the linearization of the equation which governs the equilibrium and obtaining a numerical solution around the steady state equilibrium. 

The goal of this talk is to provide a complete answer to this question by deriving a close-form solution to the nonlinear equilibrium equations. The close-form solution also reveals some new and unexpected properties, such as sunspot activities, of the original and other related models.

Brief Biography

Jenny Xiaoe Li received her Ph.D. degree from Cornell University, Ithaca, New York, in 1993. She is currently an Associate Professor with the Department of Economics and Mathematics, Penn State University, Pennsylvania. Her primary research interests include computational economics, macroeconomics, monetary economics, mathematical economics, computational finance.