IDEAS home Printed from https://ideas.repec.org/a/mul/jqat1f/doi10.1427-77082y2014i2p203-226.html
   My bibliography  Save this article

What Happens behind the New Keynesian IS? Technical Notes

Author

Listed:
  • Roberto Tamborini

Abstract

The aim of these notes is to point out and address a few technical problems concerning the so-called «IS» equation in the New Keynesian macroeconomic model. First, in the basic NK model with sole consumption, the consumption function is not properly derived from first principles (the intertemporal budget constraint is missing), and when it is, the IS as locus of aggregate demand-supply equality may not exist. Second, when investment is introduced, and the investment-saving equalization mechanism is properly worked out, the resulting IS locus is different from the NK one, with different dynamic properties and different implications for interest-rate control. In particular, the paper shows that a simple linear feed-back rule with respect to output gaps is necessary and sufficient to drive the economy to the «zero-gaps» steady state. Yet the dynamic path of output becomes (endogenously) oscillatory. It is also shown that the same implications arise for inflation control too.

Suggested Citation

  • Roberto Tamborini, 2014. "What Happens behind the New Keynesian IS? Technical Notes," Rivista italiana degli economisti, Società editrice il Mulino, issue 2, pages 203-226.
    • Handle: RePEc:mul:jqat1f:doi:10.1427/77082:y:2014:i:2:p:203-226
    as

    Download full text from publisher

    File URL: https://www.rivisteweb.it/download/article/10.1427/77082
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://www.rivisteweb.it/doi/10.1427/77082
    Download Restriction: no
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Francesco Saraceno & Roberto Tamborini, 2015. "How can it work? On the impact of quantitative easing in the Eurozone," DEM Working Papers 2015/03, Department of Economics and Management.
    2. repec:hal:spmain:info:hdl:2441/4ei7u710bj9par121c71ul9fdr is not listed on IDEAS
    3. Francesco Saraceno & Roberto Tamborini, 2015. "How can it work? On the impact of quantitative easing in the Eurozone," DEM Working Papers 2015/03, Department of Economics and Management.
    4. repec:spo:wpmain:info:hdl:2441/4ei7u710bj9par121c71ul9fdr is not listed on IDEAS

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mul:jqat1f:doi:10.1427/77082:y:2014:i:2:p:203-226. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.rivisteweb.it/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.