Interest-Rate Rules in a New Keynesian Framework with Investment
Interest-Rate Rules in a New Keynesian Framework with Investment

Author: Elena Pavlova

Publisher: Schriften zur Wirtschaftstheorie und Wirtschaftspolitik

Published: 2011

Total Pages: 0

ISBN-13: 9783631611289

DOWNLOAD EBOOK

The last decades have witnessed major progress in both monetary policy theory and practice, with broad academic consensus on the desirability of monetary policy rules and ongoing research on their exact specification. Typically, the analysis is carried out in a New Keynesian framework with nominal rigidities and constant capital stock. The latter represents a constraint that this study seeks to overcome by introducing a model with investment and capital adjustment costs. The work assesses different interest-rate rule specifications with respect to the target variables included, based on two criteria: determinacy of rational-expectations equilibrium and convergence to steady state after a shock. The study concludes that rules with both an inflation and an output gap target ensure a unique rational-expectations equilibrium and a less distressful adjustment of the economy after the occurrence of shocks.

Monetary Policy, Inflation, and the Business Cycle
Monetary Policy, Inflation, and the Business Cycle

Author: Jordi Galí

Publisher: Princeton University Press

Published: 2015-06-09

Total Pages: 295

ISBN-13: 1400866278

DOWNLOAD EBOOK

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

Putting the New Keynesian Model to a Test
Putting the New Keynesian Model to a Test

Author: Roland Straub

Publisher: International Monetary Fund

Published: 2006-05

Total Pages: 36

ISBN-13:

DOWNLOAD EBOOK

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.

Interest Rates, Policy Uncertainty, and Investment
Interest Rates, Policy Uncertainty, and Investment

Author: Joshua R. Hendrickson

Publisher:

Published: 2018

Total Pages: 39

ISBN-13:

DOWNLOAD EBOOK

In this paper, I estimate a cointegrated VAR with three long run equilibrium conditions that are consistent with the New Keynesian model. The equilibrium conditions estimated in the VAR do not provide evidence of a negative relationship between the federal funds rate and investment, or output more generally. Economic policy uncertainty, however, does have a negative and statistically significant effect on investment in the estimated model. I argue that the results support an option theory view of investment rather than the standard New Keynesian model. Also, various specifications of the model demonstrate that the findings are robust to an alternative short term nominal interest rate, the use of real interest rates rather than nominal interest rates, different classifications of investment, different measures of economic uncertainty, and a different specification of the monetary policy process. In addition, I argue that the results have implications for the weak recovery in the aftermath of the Great Recession. In particular, the results suggest that the increase in economic policy uncertainty observed after 2007 can potentially explain the weak recovery whereas the results cast doubt on the significance of the zero lower bound on nominal interest rates.

FX Intervention in the New Keynesian Model
FX Intervention in the New Keynesian Model

Author: Zineddine Alla

Publisher: International Monetary Fund

Published: 2017-09-29

Total Pages: 39

ISBN-13: 1484323831

DOWNLOAD EBOOK

We develop an open economy New Keynesian Model with foreign exchange intervention in the presence of a financial accelerator mechanism. We obtain closed-form solutions for the optimal interest rate policy and FX intervention under discretionary policy, in the face of shocks to risk appetite in international capital markets. The solution shows that FX intervention can help reduce the volatility of the economy and mitigate the welfare losses associated with such shocks. We also show that, when the financial accelerator is strong, the risk of multiple equilibria (self-fulfilling currency and inflation movements) is high. We determine the conditions under which indeterminacy can occur and highlight how the use of FX intervention reinforces the central bank’s credibility and limits the risk of multiple equilibria.

Law and Macroeconomics
Law and Macroeconomics

Author: Yair Listokin

Publisher: Harvard University Press

Published: 2019-03-11

Total Pages: 281

ISBN-13: 0674976053

DOWNLOAD EBOOK

After 2008, private-sector spending took a decade to recover. Yair Listokin thinks we can respond more quickly to the next meltdown by reviving and refashioning a policy approach, used in the New Deal, to harness law’s ability to function as a macroeconomic tool, stimulating or relieving demand as required under certain crisis conditions.

Sectoral Labor Mobility and Optimal Monetary Policy
Sectoral Labor Mobility and Optimal Monetary Policy

Author: Alessandro Cantelmo

Publisher: International Monetary Fund

Published: 2017-03-06

Total Pages: 33

ISBN-13: 1475584830

DOWNLOAD EBOOK

In an estimated two-sector New-Keynesian model with durable and nondurable goods, an inverse relationship between sectoral labor mobility and the optimal weight the central bank should attach to durables inflation arises. The combination of nominal wage stickiness and limited labor mobility leads to a nonzero optimal weight for durables inflation even if durables prices were fully flexible. These results survive alternative calibrations and interestrate rules and point toward a non-negligible role of sectoral labor mobility for the conduct of monetary policy.

Lumpy Investment and Monetary Policy
Lumpy Investment and Monetary Policy

Author: Alberto Coco

Publisher:

Published: 2014

Total Pages: 40

ISBN-13:

DOWNLOAD EBOOK

This paper analyses the theoretical and policy implications of assuming firm-specific lumpy investment behaviour by firms and compares such implications to those occurring when adopting different investment specifications in a new-Keynesian framework. We develop numerical simulations of the lumpy investment model by Sveen and Weinke (2007) and of other five specifications embedding either firm-specific capital or rental market of capital. The assessment is based on impulse responses and moments of economic variables following a productivity and a monetary shock.We preliminarily show that the degree of price stickiness and investment rigidity due to the lumpiness assumption complement each other in allowing for significant effects of monetary policy. Then, the comparison shows that models with firm-specific capital generate more volatility along the business cycle following a monetary shock while dampen the responses to a productivity shock. In such a way, they predict bigger real effects of monetary policy and better replicate empirical data. Within the firm-specific case, a degree of investment lumpiness compatible with the empirical evidence at the micro level makes economic variables more responsive to monetary and productivity shocks compared with the case in which firm-specific capital is associated to convex adjustment cost. Lastly, we show that in such setting a central bank's policy reaction function targeted to interest rate smoothing adds volatility to aggregate variables, compared with a standard Taylor rule.

A Dynamic New Keynesian Life-cycle Model
A Dynamic New Keynesian Life-cycle Model

Author: Ippei Fujiwara

Publisher:

Published: 2007

Total Pages: 38

ISBN-13:

DOWNLOAD EBOOK

"In this paper, we first construct a dynamic new Keynesian model that incorporates life-cycle behavior a la Gertler (1999), in order to study whether structural shocks to the economy have asymmetric effects on heterogeneous agents, namely workers and retirees. We also examine whether considerations of life-cycle and demographic structure alter the dynamic properties of the monetary business cycle model, specifically the degree of amplification in impulse responses. According to our simulation results, shocks indeed have asymmetric impacts on different households and the demographic structure does alter the size of responses against shocks by changing the degree of the trade-off between substitution and income effects."--Authors' abstract.

New Keynesian Economics / Post Keynesian Alternatives
New Keynesian Economics / Post Keynesian Alternatives

Author: Roy Rotheim

Publisher: Routledge

Published: 2013-03-07

Total Pages: 410

ISBN-13: 113480475X

DOWNLOAD EBOOK

The New Keynesian Economics has been the most significant development in economics in recent years. Does it actually build upon Keynes' work? In this volume, leading post Keynesian economists challenge New Keynesianism both on the grounds that it is not Keynesian, and does not provide an adequate account of our current economic problems.