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On the Mechanics of New-Keynesian Models

Author

Listed:
  • Roman Sustek

    (Queen and Mary University of London)

  • Peter Rupert

    (University of California, Santa Barbara)

Abstract

The mechanism of a standard New-Keynesian model is laid out. A particular focus is on cap- ital accumulation, the key ingredient in the transition from the basic framework to medium- scale DSGE models. The widely held view that monetary policy affects output and inflation in these models through a real interest rate channel is misguided. A decline in output and inflation is consistent with a decline, increase, or no change in the real rate. The expected path of Taylor rule shocks and the New-Keynesian Phillips Curve are key for inflation and output; the real rate largely reflects consumption smoothing.

Suggested Citation

  • Roman Sustek & Peter Rupert, 2016. "On the Mechanics of New-Keynesian Models," 2016 Meeting Papers 201, Society for Economic Dynamics.
    • Handle: RePEc:red:sed016:201
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    References listed on IDEAS

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    1. Neo Fisherism: Look, it Works!
      by Stephen Williamson in Stephen Williamson: New Monetarist Economics on 2018-05-06 01:13:00

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    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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