This paper identiﬁes parameters responsible for welfare reversals when the basic New Keynesian model is approximated. In our setting, a reversal occurs when the Ramsey policy under timeless perspective commitment ceases to be dominant against the Taylor rule after approximating the model. We ﬁnd that the parameters involved are the degree of persistence in the autoregressive shock process and the labor elasticity of real output.
article pub. typess JER
article languages JER
JEL-Classification for JER
E30 - General ; E52 - Monetary Policy ; E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination