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The New Keynesian cross

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  • Bilbiie, Florin O.

Abstract

The New Keynesian (NK) cross is a graphical and analytical apparatus for heterogeneous-agent (HANK) models expressing key aggregate demand objects—MPC and multipliers—as functions of heterogeneity parameters. It affords analytical insights into monetary, fiscal, and forward guidance multipliers, and replicates the aggregate implications of quantitative HANK. The key parameter—the constrained agents’ income elasticity to aggregate income—depends on fiscal redistribution: when it is larger (smaller) than one, the effects of policies and shocks are amplified (dampened). With uninsurable idiosyncratic uncertainty, this translates intertemporally—through compounding (discounting) in the aggregate Euler equation—into further amplification (dampening) of future shocks.

Suggested Citation

  • Bilbiie, Florin O., 2020. "The New Keynesian cross," Journal of Monetary Economics, Elsevier, vol. 114(C), pages 90-108.
    • Handle: RePEc:eee:moneco:v:114:y:2020:i:c:p:90-108
    DOI: 10.1016/j.jmoneco.2019.03.003
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    More about this item

    Keywords

    Heterogeneity; Aggregate demand; Keynesian cross; Monetary policy; Fiscal multipliers; Redistribution; Forward guidance; Hand-to-mouth; HANK; TANK;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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