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Questions tagged [new-keynesian-economics]

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1answer
26 views

Can you set $C / P^{\eta}$ to be the numeraire in a NK model?

Consider a static model with CES demand. Real aggregate demand is $$ C = \left(\sum_j c_j^{(\eta-1)/\eta}\right)^{\eta/(\eta-1)} $$ and labor supply is inelastic, so the budget constraint is $ \sum_j ...
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0answers
20 views

What is a monetary policy shock?

I am trying to understand some basic stuff about New Keynesian models and monetary policy. Despite that almost every single paper on monetary policy talks about monetary policy shocks, I still don’t ...
1
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0answers
30 views

Is the New Keynesian Phillips Curve a supply curve?

In New Keynesian models, the Phillips curve typically takes the form: $\pi_t=\beta E_t(\pi_{t+1})+\kappa y_t$ Here, $\pi_t$ refers to inflation in period $t$, and $y_t$ refers to output. Would it ...
1
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0answers
25 views

log linearization around steady state (price dynamics)

I'm stuck with a derivation from Gali's book. In the version 2008, I can't get eq. (7) from chapter 3. All is ok until the following: $$ (1-\epsilon)\log\pi_{t}=\log(\theta+(1-\theta)\exp[(1-\...
0
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1answer
48 views

Pareto efficiency (optimality conditions) in simple New Keynesian model

I am looking for the pareto-optimal equilibrium for a central planner's problem in a simple New Keynesian model. The planner's problem is to choose $\{ C_{t}, H_{t}, Y_{t}, \pi_{t}, \{h_{t}(j)_{j=0}^{\...
0
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0answers
27 views

Kink in the dynamic IS-curve

I am reading Monetary policy, inflation, and the business cycle: an introduction to the new Keynesian framework and its applications by Gali. Consider this statement: In the New Keynesian model, the ...
3
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1answer
39 views

How to interpret the difference between natural level and steady state in Macroeconomic theory

I am reading Monetary policy, inflation, and the business cycle: an introduction to the new Keynesian framework and its applications by Gali. In this question I am going to use the output $Y_t$ as an ...
0
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1answer
46 views

Why consumption is defined as $ C_t:= \left(\int^1_0C_t(i)^{\frac{\epsilon-1}{\epsilon}}di\right)^{\frac{\epsilon}{\epsilon-1}} $

I am reading Monetary policy, inflation, and the business cycle: an introduction to the new Keynesian framework and its applications by Gali. In section 3.1 he presents/defines the consumption as $$ ...
1
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0answers
61 views

FOC and Log Linerizations

I was wondering whether anyone might be able to help me or at least push me in the right direction with this New Keynesian Model. I apparently have that the household function is as follows: ...
1
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0answers
211 views

How is there full employment level at equilibrium level according to Keynesian theory(AD-AS approach)?

According to Keynesian theory :- Equilibrium level is the point at which Aggregate Demand curve intersects Aggregate Supply curve . And this point is termed as Full Employment Level How do we ...
1
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0answers
28 views

Adaptation of new keynesian model

I'm looking for literature in new keynesian model adaptation to model price shocks. I'm aware of Blanchard, Olivier, and Jordi Gali. 2007. “The Macroeconomic Effects of Oil Shocks: Why Are the 2000s ...
2
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0answers
45 views

What are the linearised equations for the flexible economy in Smets and Wouters (2007)?

To solve the Smets and Wouters (2007) model, we need the linearised equation for the economy when wages and prices are flexible (monetary policy rule depends on the potential output). However, in ...
2
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0answers
25 views

How to deal with potential output in the Sims (2002) framework?

In Sims(2002), the author explains how one solves a linear rational expectations model. $$\Gamma_0S_t=\Gamma_1S_{t-1}+C+\Psi z_t + \Pi \mu_t$$ The only thing exogenously defined in the $z_t$ ...
4
votes
1answer
257 views

Good paper/article on the mechanisms in RBC vs New Keynesian models

I have read technical books about the (baseline) RBC and New Keynesian models. However, these books tend not to explain very intuitively the propagation mechanisms of shocks between the two models, ...
3
votes
1answer
50 views

Basic New Keynesian Model - Price and Wage Level after shock

I'm currently solving a new Keynesian model with government spending. It's the basic model version, with constant returns to scale on the only production factor work. Everything has worked out fine ...
2
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0answers
99 views

Kiyotaki-Moore v.s. Bernanke-Gertler-Gilchrist - what's the difference?

What are the key differences between (i) a model which features a "Kiyotaki-Moore collateral constraint"; and (ii) a model which incorporates a "financial accelerator" (a la Bernanke-Gertler-Gilchrist)...
1
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1answer
1k views

What are the assumptions of real business cycle theory and Keynesian theory?

What are the differences between the approaches of Keynes and Real Business Cycle theorists? What are the assumptions made by both the theories? How do they differ in their methodology? Do they ...
2
votes
1answer
124 views

Basic New Keynesian Model: Why variables are defined by integral equations

In the basic New Keynesian Model most variables are described as an integral equation. Lets for Instance look at labour demand which is defined as: $$N_t=\int_{0}^{1}N_t(i)di$$ What is the intuition ...
2
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0answers
28 views

Price Synchronization in the Calvo Model

In the paper Gorodnichenko, Sheremirov and Talavera (2014) the authors compute empirically the degree of price synchronization across different goods. In a nutshell their definition of synchronization ...
2
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0answers
62 views

Government spending dynamics

I am currently reading Woodford (2010) and I have understood it for the most part. However, as I am new to solving these kind of models I have a question regarding a specific type of monetary policy ...
2
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2answers
212 views

Why solving the model for a benevolent social planner gives an efficient allocation?

Probably this question is really dumb - and I'm sorry if it is - but why solving the model for a benevolent social planner, gives an efficient allocation? What's the criteria for this efficiency? I'...
2
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2answers
71 views

What does it mean for a technology to have a $|\rho|<1$?

Nowadays, when trying to model (log)technology $a_t$, I've seen many times the following: $a_t = \rho a_{t-1}+\epsilon$, where epsilon is given a certain probability distribution. What does it mean ...
0
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1answer
95 views

Guess and verify?

I am trying to understand the intuition of the guess and verify method. Please could someone furnish me with a basic and very intuitive explanation of what we are trying to achieve and how this method ...
1
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0answers
25 views

Is it possible to proxy producers' capital with corporate bond in a macro model?

I'm trying to reproduce Gertler-Karádi (2013) model. How far-fetched is the thought to use the amount of corporate bond as an input of production? Thank you in advance.
3
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1answer
185 views

Keynesian Ethics

Reading Hayek and von Mises I found a bunch of strong arguments against interventionism beyond economics (philosophical and ethical aspects). The technical difference between Classical and Keynesian ...
-1
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1answer
75 views

New-Keynesian-Economics

interest rate in Talor rule is considered as endogenous or exogenous? Similarly there are some fiscal policy rules in assuming fiscal instrumens like government expenditure and distortionary taxes ...
0
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1answer
126 views

Jordi Gali Markup Marginal Cost Relation

Jordi Gali defined price, marginal cost and mark up relationship as Drago Bergholt tried to reach gali's representation from firm maximization problem. I think that there is error in derivation. ...
0
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1answer
267 views

Jordi Gali Euler Equation Beta

Derivation euler equation in gali book, I don't understand " β " transformation. Jordi Gali book, page 42 There is no explanation gali book the notes which are prepared by Drago Bergholt (Page 6) ...
1
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1answer
144 views

Jordi Gali optimal price setting

Monetary Policy, Inflation, and the Business Cycle, Jordi Gali, Page 45 http://elib.peaceland.edu.ng:8383/greenstone3/sites/localsite/collect/peacelan/index/assoc/HASH0139.dir/doc.pdf How does "ψ " ...
1
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0answers
119 views

Consumer's maximization problem

I am an undergrad trying to learn the basics of NK models (on my own) and I am having some difficulties understanding the derivation of certain equations. So we have the representative household ...
2
votes
2answers
584 views

Natural real interest rate and output gap

I am a bit confused about the concept of natural real interest rate. I've read that it is the level of real interest rate consistent with the output being at its potential or natural level and with ...
1
vote
1answer
233 views

Phillips curve and flexible prices

I am working in a New Keynesian context so that the Phillips curve is usually specified as follows \begin{gather} \pi_t=\beta E_t\pi_{t+1}+\kappa x_t \end{gather} where $\beta$ is the discount factor,...
0
votes
1answer
225 views

Intuition for the CES consumption index in New-Keynesian DSGE models

I don’t understand, from an intuitive point of view, the CES aggregator in the context of a New Keynsian DSGE model. I understand that the consumption index Ct is the sum of all consumption goods and ...
1
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1answer
155 views

Taylor rule and optimal monetary policy

In a New Keynesian model, under the assumption of sticky prices, we need to express the monetary policy through an equation in order to close the model made of New-Keynesian Phillips curve and dynamic ...
1
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0answers
41 views

Micro/Macro estimates on Price rigidity(calvo parameter)

I'm looking for current references on the estimates of price rigidity, and the dichotomy that seems to exist between the micro and macro estimates. For example, for labour supply elasticities there's ...
1
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0answers
69 views

Technological shocks and Labour supply in RBC and NK models

In the class notes of Eric Sims on RBC and New Keynesian models, in his site, we get to see several graphs with the impulse response functions (IRF) of real variables such as output, labour hours, ...
1
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0answers
47 views

What are the most used functional forms for utility in RBC literature, and why?

In the RBC/NK literature one has to define a functional form for the utility function of the representative household. What are the most used forms, and why are they used? Any help would be ...
2
votes
1answer
93 views

A general formulation to capture price stickiness

In Wickens' macro book, page 227 (1st edition), the author states where $p^*_t$ is the optimal price at time $t$. The three theories he is referring to are: Taylor Model of Overlapping contracts, ...
1
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0answers
155 views

How to solve model with a final good (in a perfect competition), and intermediate goods (monopolistic competition)?

Let's imagine there's only one final good produced by one firm, in a perfect competition market. In the intermediate market, we have $N$ goods which are produced and used as factor inputs for the ...
3
votes
1answer
231 views

Log-Linearizing a Dixit-Stiglitz function

In a New-Keynesian Model, the Consumption index $C_t=\left(\int_0^1{C_t(i)^{1-\gamma} \ di}\right)^{\frac{1}{1-\gamma}}$ is log-linearized to $\tilde{c_t}=\int_0^1{\tilde{c_t}(i) \ di}$ where ...
2
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0answers
56 views

Monetary Transmission in New Keynesian - Euler Equation

I get that NK model basically consists of the three equations: Taylor rule, Dynamic IS curve and the NK Phillips curve. I want to know the effect of nominal interest rate reduction on the ...
2
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0answers
26 views

Sources of the endogeneity of money in New Keynesian economics (Woodford)

I am trying to wrap my head around Woodford's "Interest and Prices" so I have a question regarding the source of the endogeneity of the money supply in his models. The Post Keynesian view is that ...
0
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1answer
66 views

Doesnt the fact that cash reserves go down in recessions contradict Keynesianism?

It seems cash reserve is procyclical. Also anyone have the financial cash reserve data?
4
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1answer
223 views

Long run trade off between inflation and output

In "The incredible Volcker Disinflation" by Goodfriend and King (2005) we are presented with the NK Pricing equation $\pi_t = E_t\pi_{t+1} + h(y_t-y_t^*)$ the author then mentions that there is no "...
2
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0answers
87 views

What condition is exactly used to solve forward New Keynesian IS equation?

In http://www.uni-hamburg.de/fachbereiche-einrichtungen/fb03/iwwt/makro/slides3.pdf, you can see New Keynesian IS equation being solved forward to yield a formula for output gap (page 40 of the pdf ...
1
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0answers
53 views

Profit-Margins in the NK Model

How do profit margins vary over "business cycles" in the new Keynesian model? I'm interested in responses of profit margins (actual price markups) to all three standard shocks in NK models: - TFP ...
6
votes
1answer
962 views

Deriving formulas from Gali's book on the New Keynesian model

I've found this link with all the derivations from Gali's book on New Keynesian model. In page 13, eq. $(3.7)$, the author derives the optimal price-setting rule $P_t^*$ by a representative firm that ...
4
votes
1answer
689 views

New-Keynesian Model: Log-linearizing the firm's FOC

In Gali's book (chapter 3), the FOC of a firm is given by: $$(\sum_{k=0}^\infty \theta^k E_k(Q_{t,t+k} Y_{t+k|t} (P_t^*/P_{t-1} - \alpha MC_{t,t+k} \beta_{t-1,t+k}))) = 0 $$ Basically, the first ...
6
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1answer
105 views

Is there any article or paper that describes what Thomas Sargent thinks of New Keynesian economics/models?

Is there any article or paper that describes what Thomas Sargent thinks of New Keynesian economics/models? I am asking this question, because we all know what Thomas Sargent thinks of Old Keynesian ...
4
votes
2answers
170 views

What would be the defining characteristic of New-Keynsian thought?

If you had to summarize New-Keynsian thought into one paragraph, or a set of equations, what would it be?