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Fluctuation and Inflation: Keynesian Models

In: Workbook for Macroeconomic Theory

Author

Listed:
  • Fernando de Holanda Barbosa

    (Brazilian School of Economics and Finance)

  • Luiz Antônio de Lima Junior

    (Federal University of Juiz de Fora, campus Governador Valdares (Brazil))

Abstract

The Keynesian model, either old or new, has three equations: (i) an IS curve that links the real interest rate and the output gap; (ii) a Phillips curve that shows the relationship between inflation, output gap, expected inflation and past inflation; and (iii) a Taylor rule for monetary policy expressing the nominal rate of interest as a function of the past nominal rate of interest, the natural rate of interest, the inflation gap and the output gap. When the economic policy regime is one of chronic inflation, or hyperinflation, the monetary policy rule gives the amount of money issued to finance a given real public deficit and to close the model it is necessary to specify the demand equation for money.

Suggested Citation

  • Fernando de Holanda Barbosa & Luiz Antônio de Lima Junior, 2025. "Fluctuation and Inflation: Keynesian Models," Springer Texts in Business and Economics, in: Workbook for Macroeconomic Theory, edition 0, chapter 14, pages 265-285, Springer.
    • Handle: RePEc:spr:sptchp:978-3-031-82017-5_14
    DOI: 10.1007/978-3-031-82017-5_14
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