Dynamic optimizing models with an IS-LM-type structure and slow price adjustments have been used for much recent monetary policy analysis, but usually with capital and investment treated as exogenous-a significant restriction. This paper demonstrates that investment decisions can be endogenized without undue complexity in such models and that these can be calibrated to provide reasonably realistic dynamic behavior. It is necessary, however, to include capital adjustment costs; models with no adjustment costs match cyclical data very poorly. Indeed, their match is considerably poorer than models with constant capital. The paper also fmds that the preferred adjustment-cost specification is not close to quadratic.

The first part of this paper is devoted to describe a New Keynesian model, which, after calibration, shows a great fit on Euro area macroeconomic data. Then, the stabilizing properties of alternative monetary policy rules are evaluated for consideration of the European Central Bank (ECB). Our main finding is that a simple rule that provides the reaction of the nominal interest rate to price inflation, wage inflation, and its previous observation can fairly well approximate the optimal monetary policy. This result is robust to including an ECB preference on interest-rate smoothing. Copyright 2007 The Ohio State University.

Wage stickiness is incorporated to a New-Keynesian model with variable capital in a way that generates endogenous unemployment fluctuations as the log difference between aggregate labor supply and aggregate labor demand. After estimation with U.S. data, the implied second-moment statistics of the unemployment rate provide a reasonable match with those observed in the data. Our results also show that wagepush shocks, demand shifts and monetary policy shocks are the three major determinants of unemployment fluctuations. Compared to an estimated canonical DSGE model without unemployment: wage stickiness is higher, labor supply elasticity is lower, the slope of the New-Keynesian Phillips curve is flatter, and the importance of technology innovations on output growth variability increases. Miguel Casares AbstractWage stickiness is incorporated to a New-Keynesian model with variable capital in a way that generates endogenous unemployment ‡uctuations as the log di¤erence between aggregate labor supply and aggregate labor demand. After estimation with U.S. data, the implied second-moment statistics of the unemployment rate provide a reasonable match with those observed in the data. Our results also show that wage-push shocks, demand shifts and monetary policy shocks are the three major determinants of unemployment ‡uctuations.Compared to an estimated canonical DSGE model without unemployment: wage stickiness is higher, labor supply elasticity is lower, the slope of the New-Keynesian Phillips curve is ‡atter, and the importance of technology innovations on output growth variability increases.

Dynamic optimizing models with an IS-LM-type structure and slow price adjustments have been used for much recent monetary policy analysis, but usually with capital and investment treated as exogenous-a significant restriction. This paper demonstrates that investment decisions can be endogenized without undue complexity in such models and that these can be calibrated to provide reasonably realistic dynamic behavior. It is necessary, however, to include capital adjustment costs; models with no adjustment costs match cyclical data very poorly. Indeed, their match is considerably poorer than models with constant capital. The paper also fmds that the preferred adjustment-cost specification is not close to quadratic.

The continued spread of COVID-19 suggests a significant possibility of reimposing the lockdowns and stricter social distancing similar to the early phase of pandemic control. We present a dynamic model to quantify the impact of isolation for the contagion curves. The model is calibrated to the COVID-19 outbreak in Spain to study the effects of the isolation enforcement following the declaration of the state of alarm (14 March 2020). The simulations indicate that both the timing and the intensity of the isolation enforcement are crucial for the COVID-19 spread. For example, a 4-day earlier intervention for social distancing would have reduced the number of COVID-19 infected people by 67%. The model also informs us that the isolation enforcement does not delay the peak day of the epidemic but slows down its end. When relaxing social distancing, a reduction of the contagion probability (with the generalization of preventive actions, such as face mask wearing and hands sanitizing) is needed to overcome the effect of a rise in the number of interpersonal encounters. We report a threshold level for the contagion pace to avoid a second COVID-19 outbreak in Spain.