scholarly journals Effective Monetary Policy Strategies in New Keynesian Models: A Re-examination

2014 ◽  
Author(s):  
Hess Chung ◽  
Edward Herbst ◽  
Michael Kiley
Keyword(s):  
Monetary Policy ◽  
New Keynesian ◽  
New Keynesian Models ◽  
Policy Strategies

Effective Monetary Policy Strategies in New Keynesian Models: A Reexamination

2015 ◽  
Vol 29 (1) ◽  
pp. 289-344 ◽  
Author(s):  
Hess Chung ◽  
Edward Herbst ◽  
Michael T. Kiley
Keyword(s):  
Monetary Policy ◽  
New Keynesian ◽  
New Keynesian Models ◽  
Policy Strategies

scholarly journals INFLATION RISK AND OPTIMAL MONETARY POLICY

2009 ◽  
Vol 13 (S1) ◽  
pp. 58-75 ◽  
Author(s):  
William T. Gavin ◽  
Benjamin D. Keen ◽  
Michael R. Pakko
Keyword(s):  
Monetary Policy ◽  
Term Structure ◽  
New Keynesian ◽  
Optimal Monetary Policy ◽  
Monetary Policies ◽  
Inflation Risk ◽  
Long Run ◽  
Order Of Magnitude ◽  
New Keynesian Models ◽  
Sticky Wages

This paper shows that the optimal monetary policies recommended by New Keynesian models still imply a large amount of inflation risk. We calculate the term structure of inflation uncertainty in New Keynesian models when the monetary authority adopts the optimal policy. When the monetary policy rules are modified to include some weight on a price path, the economy achieves equilibria with substantially lower long-run inflation risk. With either sticky prices or sticky wages, a price path target reduces the variance of inflation by an order of magnitude more than it increases the variability of the output gap.

scholarly journals Some Notes on Historical, Theoretical, and Empirical Background of DSGE Models

2014 ◽  
Vol 14 (2) ◽  
pp. 145-164 ◽  
Author(s):  
Martin Slanicay
Keyword(s):  
Monetary Policy ◽  
Empirical Evidence ◽  
Paradigm Shift ◽  
New Keynesian ◽  
Dsge Models ◽  
Nominal Rigidities ◽  
Pros And Cons ◽  
New Keynesian Models ◽  
Rbc Models

Abstract In this paper I present the historical, theoretical and empirical background of DSGE models. I show that the fundament of these models lies in optimizing agents framework and argue which impulses fueled the development of DSGE models. I demonstrate the evolution of DSGE models with an accent on the role and effects of the monetary policy, using distinction between RBC models and New Keynesian models. I explain the paradigm shift from the RBC models to the New Keynesian models by pointing out the main pitfalls of the RBC models and showing how adding nominal rigidities to the otherwise standard RBC models enhances empirical properties of these models. I also discuss how nominal rigidities are modeled in New Keynesian DSGE models and what the pros and cons of different approaches are. Finally, I review the most important New Keynesian theories of nominal rigidities and some of the empirical evidence on price and wage rigidities

INVESTMENT AND FORWARD-LOOKING MONETARY POLICY: A WICKSELLIAN SOLUTION TO THE PROBLEM OF INDETERMINACY

2017 ◽  
Vol 22 (5) ◽  
pp. 1345-1369
Author(s):  
Stephen McKnight
Keyword(s):  
Monetary Policy ◽  
New Keynesian ◽  
Taylor Rules ◽  
Labor Supply Elasticity ◽  
New Keynesian Models ◽  
The Interest Rate ◽  
Investment Spending ◽  
Feedback Rule ◽  
Potential Remedy ◽  
Forward Looking

Recent research has shown that forward-looking Taylor rules are subject to indeterminacy in New Keynesian models with capital and investment spending. This paper shows that adopting a forward-looking Wicksellian rule that responds to the price level, rather than to inflation, is one potential remedy for the indeterminacy problem. This result is shown to be robust to variations in both the labor supply elasticity and the degree of price stickiness, the inclusion of capital adjustments costs, and if output also enters into the interest-rate feedback rule. Finally, it is shown that the superiority of Wicksellian rules over Taylor rules is not only confined to forward-looking policy, but also extends to both backward-looking and contemporaneous-looking specifications of the monetary policy rule.

scholarly journals Inflation in the Great Recession and New Keynesian Models

2015 ◽  
Vol 7 (1) ◽  
pp. 168-196 ◽  
Author(s):  
Marco Del Negro ◽  
Marc P. Giannoni ◽  
Frank Schorfheide
Keyword(s):  
Monetary Policy ◽  
Great Recession ◽  
Economic Activity ◽  
Financial Frictions ◽  
New Keynesian ◽  
Dsge Models ◽  
Dsge Model ◽  
Macroeconomic Variables ◽  
The Great Recession ◽  
New Keynesian Models

Several prominent economists have argued that existing DSGE models cannot properly account for the evolution of key macroeconomic variables during and following the recent Great Recession. We challenge this argument by showing that a standard DSGE model with financial frictions available prior to the recent crisis successfully predicts a sharp contraction in economic activity along with a protracted but relatively modest decline in inflation, following the rise in financial stress in 2008:IV. The model does so even though inflation remains very dependent on the evolution of economic activity and of monetary policy. (JEL E12, E31, E32, E37, E44, E52, G01)

scholarly journals Simple Analytics of the Government Expenditure Multiplier

2011 ◽  
Vol 3 (1) ◽  
pp. 1-35 ◽  
Author(s):  
Michael Woodford
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Government Expenditure ◽  
New Keynesian ◽  
Policy Response ◽  
Neoclassical Model ◽  
Key Factors ◽  
Government Purchases ◽  
New Keynesian Models ◽  
The Government

This paper explains the key factors that determine the output multiplier of government purchases in New Keynesian models, through a series of simple examples that can be solved analytically. Sticky prices or wages allow for larger multipliers than in a neoclassical model, though the size of the multiplier depends crucially on the monetary policy response. A multiplier well in excess of one is possible when monetary policy is constrained by the zero lower bound, and in this case welfare increases if government purchases expand to partially fill the output gap that arises from the inability to lower interest rates. (JEL E12, E23, E32, E62, H20, H50)

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