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

First of all, this is not something special to "the basic New Keynesian Model". It is a commonly used technique when modeling an economy with competitive environment. In your case, the author wrote ...
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  • 196
6 votes
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Intuition for the CES consumption index in New-Keynesian DSGE models

Heuristically, you can think of the integral as just a sum: $$ \bar{C} = \left( \sum_{i=1}^n C_i^{1-\frac{1}{\epsilon}} \right)^{\frac{\epsilon}{\epsilon - 1}} $$ where $\bar{C}$ is an index of ...
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6 votes
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What would be the defining characteristic of New-Keynsian thought?

Gali's Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework, provides an advanced undergraduate / first-year graduate student introduction to these models,...
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5 votes

Macroeconomics Textbook on New-Keynesian models

Check out the following: Jordi Gali; Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework David Romer; Advanced Macroeconomics Michael Woodford; ...
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  • 714
5 votes

Macroeconomics Textbook on New-Keynesian models

Michael Woodford's book Interest and Prices, while it may not be explicitly New Keynesian, may have some of the rigor you're looking for applied to this class of models. A more direct alternative ...
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  • 2,006
4 votes

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

This journal article (Oct 29-2011,) has parts from a telephone conversation of the journalist with Sargent: http://www.nytimes.com/2011/10/30/your-money/thomas-sargent-nobel-winner-rejects-...
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4 votes

Macroeconomics Textbook on New-Keynesian models

Drago Bergholt has all math steps for Gali's book: The Basic New Keynesian Model
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3 votes
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Why solving the model for a benevolent social planner gives an efficient allocation?

I think the general proof is in this paper. Thinking in a simple exchange Edgeworth Box, a competitive economy involves prices, which mediate the relationship between consumers relative valuation of ...
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  • 8,477
3 votes

Can intermediate good producer's profit ever be zero in new keynesian model?

Yes. In the core New Keynesian model in Galí, it is possible for the aggregate profits of intermediate good producers to be zero or negative; and it is even more likely that the profits of individual ...
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3 votes

Macroeconomics Textbook on New-Keynesian models

One book which I have used and which has an excellent chapter on NK-DSGE models is Monetary Theory and Policy by Carl E. Walsh. Even though he only has one chapter on NK-DSGE models (50 pages or so) ...
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  • 396
3 votes

Macroeconomics Textbook on New-Keynesian models

I've just found Michael Wickens' Book and George Mccandless' ABC of RBC. Wickens leaves the stochastic element of the DSGE's model out of the picture, so I'm not sure if it's a good book. ...
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3 votes

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

I will try to answer this question although it is rather hard using only one paragraph, if not impossible. A paragraph explaining what New-Keynesian Economics is: Models explaining price and wage ...
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  • 396
3 votes
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Deriving formulas from Gali's book on the New Keynesian model

Mathematically speaking, we are not sure. The infinite sums mentioned is of the form $$E_t\sum_{k=0}^{\infty}\gamma^kX_{t+k},\;\; 0<\gamma<1$$ The fact that there is the declining factor, $\...
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3 votes
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Log-Linearizing a Dixit-Stiglitz function

Thanks for the hint and the link! I think I now managed to find the solution. Putting the exponent on the LHS and replacing $C_t^{1-\gamma}$ with $C+(1-\gamma) C^{1-\gamma}C \tilde{c}$ and $C_t(...
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  • 840
3 votes
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Log linearising EUler equation

As you say the first step is to take log of both sides after that you are just applying the rules for logarithms and rearrange. For example: $$\ln (XZ)=\ln X + \ln Z$$ $$\ln X/Z= \ln X - \ln Z$$ $$\...
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2 votes
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Taylor rule and optimal monetary policy

I'm not sure I fully understand what you mean by computing it endogenously? The nominal interest rate would be endogenous in the NK framework because the output gap and inflation are endogenous. There'...
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2 votes
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A general formulation to capture price stickiness

I will answer the first question, I believe the second one can be found in the book's appendix. "Price stickiness" is defined with respect to the optimal price level for the period (here denoted by a ...
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2 votes

Monetary Transmission in New Keynesian - Euler Equation

Real interest rate = Nominal interest rate - Expected inflation Reducing the nominal interest rate by more than the decline in the expected inflation, with respect to the inflation target, leads the ...
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2 votes

Long run trade off between inflation and output

Note that if $\pi_t = E_t\pi_{t+1}$ (current and expected future inflation are equal) then $$\pi_t = E_t\pi_{t+1} + h(y_t-y_t^*) \implies 0 = h(y_t - y_t^*) \implies y_t = y_t^*$$ So as the output ...
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  • 6,409
2 votes
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New-Keynesian Model: Log-linearizing the firm's FOC

$$(\sum_{k=0}^\infty \theta^k E_k(Q_{t,t+k} Y_{t+k|t} (P_t^*/P_{t-1} - \alpha MC_{t,t+k} \beta_{t-1,t+k}))) = 0 $$ Log linearize around the zero inflation steady state. $$p_t^* - p_{t-1} = (1 - \...
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  • 6,409
2 votes

Macroeconomics Textbook on New-Keynesian models

I often dip into "advanced undergrad" texts when I really want something broken down. Sometimes they deliver, sometimes not. With that beaming endorsement, I'll offer this suggestion: pair Romer's ...
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  • 1,048
2 votes

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

New technology makes past technology obsolete. How many people know these days how to light a fire by rubbing wood together? How many people know the nuts and bolts of tending to the engine of a train ...
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2 votes

Guess and verify?

As Dave Harris commented it depends a bit on the context. I know the guess and verify solution method mainly from solving value functions in differential resource games (more specifically the papers ...
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  • 2,330
2 votes
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Keynesian Ethics

If you enjoy ethical and philosophical aspects, you should look into international aid and intervention. Check out "Adaptive Preferences and Women's Empowerment" by Khader and work by Nussbaum in ...
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2 votes
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Natural real interest rate and output gap

Regarding you first question, the answer is 'yes', at least in your model. For if the real interest rate, $r_t=i_t-E_t\pi_{t+1}$, is equal to its natural level $r^n_t$, then in your model $x_t=E_tx_{t+...
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  • 923
2 votes
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Phillips curve and flexible prices

The New Keynesian Philips Curve (NKPC) may be derived using price settings frictions introduced by Guillermo Calvo. The NKPC can under such conditions be written as you write it, i.e. $$\pi_t=\beta ...
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  • 923
2 votes
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Basic New Keynesian Model - Price and Wage Level after shock

Try to give a look at what happens to inflation's IRF. If it stays positive for the whole horizon of the IRF then simply prices have increased over time at the inflation rate. I guess that any non-...
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  • 106
2 votes

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

If possible, clarifying what exactly you're most interested in might help answers be more on point and useful. Are you interested in the mechanisms that cause a one-period shock to last (and not just ...
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  • 1,370
2 votes
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How to interpret the difference between natural level and steady state in Macroeconomic theory

Natural level of output is equivalent to full employment output. This does not mean full employment of all resources, there is always a natural level of unemployment even in full employment output ...
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  • 1,960
2 votes

Log-linear version of the uncovered interest rate parity

It’s derived as follows. First start with original equation. $$(1+i_t)=(1+i^*_t)\frac{S_{t+1}}{S_t}$$ Take natural logs of both sides: $$\ln(1+i_t)=\ln(1+i^*_t)+\ln(S_{t+1}) -\ln(S_t)$$ Now you ...
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