The Determinacy Of New-Keynesian Models

Basic New Keynesian monetary policy model is a dynamic stochastic general equilibrium model,which incorporates the rational expectation.This basic framework provides a forward looking perspective for monetary policy analysis,but,meanwhile,rises an issue related to indeterminacy—the multiple rational expectation equilibrium(REE)solutions.Because a unique stable equilibrium is required when making a monetary policy,a substantial number of approaches have been proposed by researchers to rule out the indeterminacy.The current mainstream view contends that the learnability of REE solutions under least-square(LS)learning rule should be considered necessary for the plausibility of the REEs in order to rule out the explosive solutions.This conclusion is based on the assumption that the agents in the economy are identical and their learning rule is precisely specified.However,the agents,in the reality,have limit knowledge of the motion of the economy,and they may have significant difference in belief and preference,which combined together lead to the fact that they are possible to bear incorrect knowledge about the economic structure and they might form their forecast in different ways.Based on this argument,the models in this paper assume the agents fail to specify the correct economic motion and in some cases they can have heterogeneous expectation.Through analyzing the models in different context,this paper mainly probe the issue whether the learnability criterion still can be regarded as necessary condition to eliminate the dynamically explosive solution.The results of this paper shows that in the newly-built models the LS learnability still can serve as a criterion to rule out the explosive equilibrium solution,but at the same time it also wrongly eliminate the stable equilibrium solution.But if the agents can fully take the major variables that influences the outcome in to consideration when forming their expectation under LS learning rule,they can rule out the explosive solutions,while the unique stable one.This paper also provides an extra support to the conclusion that the minimal state variable(MSV)solution is the unique stable equilibrium solution.