Download or read book Specifying and Estimating New Keynesian Models with Instrument Rules and Optimal Monetary Policies written by and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Unconventional Policy Instruments in the New Keynesian Model written by Zineddine Alla and published by International Monetary Fund. This book was released on 2016-03-10 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes the use of unconventional policy instruments in New Keynesian setups in which the ‘divine coincidence’ breaks down. The paper discusses the role of a second instrument and its coordination with conventional interest rate policy, and presents theoretical results on equilibrium determinacy, the inflation bias, the stabilization bias, and the optimal central banker’s preferences when both instruments are available. We show that the use of an unconventional instrument can help reduce the zone of equilibrium indeterminacy and the volatility of the economy. However, in some circumstances, committing not to use the second instrument may be welfare improving (a result akin to Rogoff (1985a) example of counterproductive coordination). We further show that the optimal central banker should be both aggressive against inflation, and interventionist in using the unconventional policy instrument. As long as price setting depends on expectations about the future, there are gains from establishing credibility by using any instrument that affects these expectations.
Download or read book Monetary Policy Inflation and the Business Cycle written by Jordi Galí and published by Princeton University Press. This book was released on 2015-06-09 with total page 295 pages. Available in PDF, EPUB and Kindle. Book excerpt: The classic introduction to the New Keynesian economic model This revised second edition of Monetary Policy, Inflation, and the Business Cycle provides a rigorous graduate-level introduction to the New Keynesian framework and its applications to monetary policy. The New Keynesian framework is the workhorse for the analysis of monetary policy and its implications for inflation, economic fluctuations, and welfare. A backbone of the new generation of medium-scale models under development at major central banks and international policy institutions, the framework provides the theoretical underpinnings for the price stability–oriented strategies adopted by most central banks in the industrialized world. Using a canonical version of the New Keynesian model as a reference, Jordi Galí explores various issues pertaining to monetary policy's design, including optimal monetary policy and the desirability of simple policy rules. He analyzes several extensions of the baseline model, allowing for cost-push shocks, nominal wage rigidities, and open economy factors. In each case, the effects on monetary policy are addressed, with emphasis on the desirability of inflation-targeting policies. New material includes the zero lower bound on nominal interest rates and an analysis of unemployment’s significance for monetary policy. The most up-to-date introduction to the New Keynesian framework available A single benchmark model used throughout New materials and exercises included An ideal resource for graduate students, researchers, and market analysts
Download or read book New Keynesian Models and Monetary Policy written by Ulf Söderström and published by . This book was released on 2009 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using an empirical New-Keynesian model with optimal discretionary monetary policy, we estimate key parameters - the central bank's preference parameters; the degree of forward-looking behavior in the determination of inflation and output; and the variances of inflation and output shocks-to match some broad characteristics of U.S. data. Our obtained parameterization implies a small concern for output stability but a large preference for interest rate smoothing, and a small degree of forward-looking behavior in price-setting but a large degree of forward-looking in the determination of output. Our methodology also allows us to carefully examine the consequences of alternative parameterizations and to provide intuition for our results.
Download or read book NBER Macroeconomics Annual 2005 written by Kenneth S. Rogoff and published by MIT Press. This book was released on 2006-04 with total page 479 pages. Available in PDF, EPUB and Kindle. Book excerpt: The 20th NBER Macroeconomics Annual, covering questions at the cutting edge of macroeconomics that are central to current policy debates.
Download or read book Robust Monetary Policy in the New Keynesian Framework written by Kai Leitemo and published by . This book was released on 2007 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the effects of model uncertainty in a simple New-Keynesian model using robust control techniques. Due to the simple model structure, we are able to find closed-form solutions for the robust control problem, analysing both instrument rules and targeting rules under different timing assumptions. In all cases but one, an increased preference for robustness makes monetary policy respond more aggressively to cost shocks but leaves the response to demand shocks unchanged. As a consequence, inflation is less volatile and output is more volatile than under a non-robust policy. Under one particular timing assumption, however, increasing the preference for robustness has no effect on the optimal targeting rule (nor on the economy).
Download or read book Unconventional Policy Instruments in the New Keynesian Model written by Zineddine Alla and published by . This book was released on 2016 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes the use of unconventional policy instruments in New Keynesian setups in which the 'divine coincidence' breaks down. The paper discusses the role of a second instrument and its coordination with conventional interest rate policy, and presents theoretical results on equilibrium determinacy, the inflation bias, the stabilization bias, and the optimal central banker's preferences when both instruments are available. We show that the use of an unconventional instrument can help reduce the zone of equilibrium indeterminacy and the volatility of the economy. However, in some circumstances, committing not to use the second instrument may be welfare improving (a result akin to Rogoff (1985a) example of counterproductive coordination). We further show that the optimal central banker should be both aggressive against inflation, and interventionist in using the unconventional policy instrument. As long as price setting depends on expectations about the future, there are gains from establishing credibility by using any instrument that affects these expectations.--Abstract.
Download or read book New Keynesian Open economy Models and Their Implications for Monetary Policy written by David Bowman and published by . This book was released on 2003 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: Also available on Internet.
Download or read book Putting the New Keynesian Model to a Test written by Roland Straub and published by International Monetary Fund. This book was released on 2006-05 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: In recent years, New Keynesian dynamic stochastic general equilibrium (NK DSGE) models have become increasingly popular in the academic literature and in policy analysis. However, the success of these models in reproducing the dynamic behavior of an economy following structural shocks is still disputed. This paper attempts to shed light on this issue. We use a VAR with sign restrictions that are robust to model and parameter uncertainty to estimate the effects of monetary policy, preference, government spending, investment, price markup, technology, and labor supply shocks on macroeconomic variables in the United States and the euro area. In contrast to the NK DSGE models, the empirical results indicate that technology shocks have a positive effect on hours worked, and investment and preference shocks have a positive impact on consumption and investment, respectively. While the former is in line with the predictions of Real Business Cycle models, the latter indicates the relevance of accelerator effects, as described by earlier Keynesian models. We also show that NK DSGE models might overemphasize the contribution of cost-push shocks to business cycle fluctuations while, at the same time, underestimating the importance of other shocks such as changes to technology and investment adjustment costs.
Download or read book New Keynesian Models and Monetary Policy written by Ulf Söderström and published by . This book was released on 2006 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using an empirical New-Keynesian model with optimal discretionary monetary policy, we estimate key parameters - the central bank's preference parameters; the degree of forward-looking behavior in the determination of inflation and output; and the variances of inflation and output shocks - to match some broad characteristics of U.S. data. The parameterization we obtain implies a small concern for output stability but a large preference for interest rate smoothing, and a small degree of forward-looking behavior in price-setting but a large degree of forward-looking in the determination of output. Our methodology also allows us to carefully examine the consequences of alternative parameterizations and to provide intuition for our results.
Download or read book The New Keynesian Phillips Curve written by Paolo Guarda and published by . This book was released on 2020 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The New Keynesian Phillips curve (NPC) differs from the conventional expectations-augmented Phillips curve in that it is forward-looking and links inflation to a measure of marginal cost instead of unemployment or the output gap. More fundamentally, the NPC is derived from New Keynesian models that combine nominal rigidities with individual optimising behaviour and model-consistent (rational) expectations. Because the NPC is grounded in micro-theory (unlike the conventional expectations-augmented Phillips curve), it is robust to some forms of the Lucas critique and may serve to analyse the impact structural changes such as increased price flexibility may have on inflation. New Keynesian Phillips curve estimates for Luxembourg using the Galí and Gertler (1999) hybrid form suggest that firms change prices often but tend to use backward-looking rules-of-thumb instead of resetting prices optimally using forward-looking expectations. In terms of policy implications, although the results suggest prices in Luxembourg are relatively flexible, the prevalence of backward-looking price setting implies greater inflation persistence and a higher sacrifice ratio attached to disinflationary monetary policy. From the perspective of individual firms, backward-looking price setting may be a rational response in a very small open economy because of its vulnerability to external shocks. Small size and openness plausibly imply higher costs of collecting information and lower benefits from optimal price setting.
Download or read book New Keynesian Optimal Policy Models written by Richard Dennis and published by . This book was released on 2004 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper estimates two optimization-based sticky-price New Keynesian models and assesses how well they describe U.S. output, inflation, and interest rate dynamics. We consider models in which either internal habit formation influence consumption behavior, and in which Calvo-pricing and inflation indexation generate price and inflation inertia. Subject to constraints dictated by household and firm behavior, monetary policy is set under discretion and the model's time-consistent equilibrium is employed to estimate key behavioral parameters. We find that specifications estimated on consumption data perform better than specifications estimated on output data and that models with external habit formation out-perform models with internal habit formation. Nevertheless, even the best fitting specification displays characteristics that are inconsistent with the data.
Download or read book Optimal Monetary Policy in an Estimated New Keynesian Model with Heterogeneous Sectors written by Yue Tan and published by . This book was released on 2017 with total page 157 pages. Available in PDF, EPUB and Kindle. Book excerpt: I develop a multisector New Keynesian dynamic stochastic general equilibrium model incorporating heterogeneities in the sector size, price stickiness, price indexation, and the price markup. I estimate a 12-sector version with post-1984 U.S. data using Bayesian techniques. The estimates suggest that over the sample period the Federal Reserve (the Fed) did not respond to changes in the prices of gasoline and other energy goods or changes in the price of health care, yet responded relatively more aggressively to changes in the prices of housing and utilities. I obtain multiple welfare-maximizing monetary policy schemes via simulation. The optimal schemes suggest that the Fed should focus on the prices of housing and utilities as well as the prices of food and beverages when responding to inflation. However, the welfare gains are small, suggesting that the current inflation target adopted by the Fed is almost indistinguishable from the optimal one in terms of welfare. On the other hand, more aggressive targeting of the output gap can offer much larger welfare improvement.
Download or read book The Four Equation New Keynesian Model written by Eric R. Sims and published by . This book was released on 2019 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops a New Keynesian model featuring financial intermediation, short and long term bonds, credit shocks, and scope for unconventional monetary policy. The log-linearized model reduces to four key equations - a Phillips curve, an IS equation, and policy rules for the short term nominal interest rate and the central bank's long bond portfolio (QE). The four equation model collapses to the standard three equation New Keynesian model under a simple parameter restriction. Credit shocks and QE appear in both the IS and Phillips curves. Optimal monetary policy entails adjusting the short term interest rate to offset natural rate shocks, but using QE to offset credit market disruptions. The ability of the central bank to engage in QE significantly mitigates the costs of a binding zero lower bound.
Download or read book Optimal Monetary Policy under Uncertainty Second Edition written by Richard T. Froyen and published by Edward Elgar Publishing. This book was released on 2019 with total page 466 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides a thorough survey of the model-based literature on optimal monetary in a stochastic setting. The survey begins with the literature of the 1970s which focused on the information problem in policy design and extends to the New Keynesian approach of the 1990s which centered on evaluating alternative targeting strategies. New to the second edition is consideration of research since the world financial crisis on the role of financial markets and institutions in the conduct of monetary policy.
Download or read book Issues in Monetary Policy written by Kent Matthews and published by John Wiley & Sons. This book was released on 2006-02-22 with total page 210 pages. Available in PDF, EPUB and Kindle. Book excerpt: Since the Bank of England was made independent in 1997, the conduct of monetary policy has been relatively uncontroversial. The debates between Keyneisans, monetarists and supporters of fixed exchange rate mechanisms now appear very distant. Despite the apparent consensus there are many issues related to the conduct of monetary policy that are not yet settled and which will soon come to the fore. Is the current form of independence for the Bank of England appropriate? Should a central bank target inflation or the prices level? How does a central bank deal with asset price deflation? Should more account be taken of monetary aggregates? Should central banks target asset prices? What is the relationship between the money supply and asset price inflation? How should central banks ensure financial stability? The IEA was at the forefront of changing the parameters of the debate surrounding monetary policy in the 1970s and 1980s. This text, brings together some of the leading authors in the field, including the current Governor of the Bank of England, to discuss current issues in monetary policy and the relationship between monetary policy and financial markets. It is appropriate for undergraduates and postgraduates in economics and finance as well as for practitioners in financial markets.
Download or read book New Keynesian Models written by V. V. Chari and published by . This book was released on 2008 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: Macroeconomists have largely converged on method, model design, reduced-form shocks, and principles of policy advice. Our main disagreements today are about implementing the methodology. Some think New Keynesian models are ready to be used for quarter-to-quarter quantitative policy advice; we do not. Focusing on the state-of-the-art version of these models, we argue that some of its shocks and other features are not structural or consistent with microeconomic evidence. Since an accurate structural model is essential to reliably evaluate the effects of policies, we conclude that New Keynesian models are not yet useful for policy analysis.
