# Questions tagged [new-keynesian-economics]

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### What are the major flaws of the RBC model and how does the New Keynesian model address them?

Looking for a generic answer to this question and potentially literature etc. that will help me study this question. Thanks in advance.
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### Solving Rational Expectation Models Linear vs. Nonlinear

Since I am coding some linear New Keynesian models in python and solving them under rational expectations (using the method of undetermined coefficients/linear time iteration), I was wondering whether ...
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### Why do investment adjustment and capital adjustment costs yield different dynamics?

Both the Business Cycle and DSGE literature find that Investment adjustment costs and capital adjustment costs give rise to different dynamics for investment, output, consumption etc. Investment ...
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### Deriving optimality conditions in the New Keynesian model framework with an undefined consumption function

I am trying to solve the household's optimization problem in the New Keynesian model framework, where utility is given by $$E_0\sum_{t=0}^\infty \beta^t \mathcal{U}(C_t,L_t,N_t;Z_t)$$ and period ...
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### Deriving the New Keynesian Phillips Curve (NKPC)

I have a question regarding the NKPC. I would like to know if it is possible to derive the NKPC from a sticky prices model, without making assumptions regarding the production function firms face. I ...
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### New Keynesian Phillips curve with time-varying elasticity of demand

I am looking for a paper or notes which derive the New Keynesian Phillips curve with Calvo price staggering and time-varying elasticity of demand (i.e. markup shocks). Specifically, I am trying to ...
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### Keynesian model functions

In The Keynesian economy, I have the following model Here, the production function $F(N,K) = Y/K = A(N/K)^{1.10}$ and by the labor demand function $F_N(K,N)= N/K= b_0(w/p)^{b_1}$. right? That is, ...
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### Intuition for effect of interest rate changes in New Keynesian model

I am trying to understand the intuition behind the effect of an interest rate change in a simple New Keynesian model (or really in any sticky price model). As a simple example, I take (roughly) the ...
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### How were unit labor costs estimated by Gali and Gertler (1999)?

I am trying to estimate a NKPC like the one Gali & Gerter, 1999 and Gali &Gerter, 2001 estimated. I am having trouble with understangind how they calculated the marginal cost, i.e., which time ...
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### Why is Keynes attacking the (neo)classical theory of interest rates on the grounds that it is indeterminate?

I do understand that he argues that in order to draw the loanable funds supply curve, you have to already know the volume of income, i.e. production, and therefore the interest rate in advance. But ...
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### loanable funds theory: why is the supply of loanable funds equal to saving (+ dishoarding + new money)?

It seems that the loanable funds theory suggests that all that is saved is supplied in the market for loanable funds. This makes sense when we are talking about 'household saving' (i.e. household ...
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### Calvo Price setting in a Multi-sector NK Model

In Calstrom-Fuerst-Ghironi (2004) "Does It Matter (for Equilibrium Determinacy) What Price Index the Central Bank Targets?", they used a standard two-sector NK model, and the optimal price ...
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### Why Keynesians prefer short run measures despite straight long-run Phillips curve?

I was studying about the Monetarists' and Keynesians' view of the Phillips curve and natural rate theory of Friedman. It seems intuitive to me as to why Friedman argues that using an expansionary ...
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### Log linearising EUler equation

I am trying to solve a problem that asks to log linearise following Euler equation of the New Keynesian model: $$C^{-\sigma}_t=\beta E_tC^{-\sigma}_{t+1}(1+i_t)/(1+\pi_{t+1}).$$ The solution is ...
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### Elasticity of substitution in leisure

This might be a very basic question, but I am a beginner in macro models. I would appreciate help with my doubt. In different papers I have read about the elasticity of labor supply or the inverse of ...
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### Log-linear version of the uncovered interest rate parity

I am trying to derive the log-linear version of the uncovered interest rate parity under complete asset markets. I know that the UIP condition is given by $$(1+i_t)=(1+i^*_t)\frac{S_{t+1}}{S_t}$$ I ...
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### 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, ...
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### 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 ...