A New Keynesian Workbook

Kapinos, Pavel S.

doi:10.2139/ssrn.961168

Cited by 5 publications

(8 citation statements)

References 22 publications

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“…4 The Excel workbook accompanying this paper can be downloaded from our websites. Kapinos [8] also provides an accompanying Excel workbook. Our spreadsheet differs in that it allows for the analyses of risk shocks, the simultaneous effects of different shocks, or alternative forms of inflation expectations formation beyond adaptive expectations.…”

Section: The Dad-das Modelmentioning

confidence: 99%

“…be based on a mixture of current inflation (capturing adaptive expectations) and the future inflation target of the Central Bank (capturing rational expectations-assuming the target is credible) 8 :…”

Section: The Dad-das Modelmentioning

confidence: 99%

“…For demand shocks, we consider the effects of both temporary 8 Note that this expectation equation is not strictly model-consistent, therefore not fully "rational". For example, with γ = 0, agents always expect next period's inflation rate to be at the target.…”

Section: Persistence Of Shocksmentioning

confidence: 99%

“…Jones [4]; Mankiw [1]; Mishkin [5]). The change in the treatment of business cycles found in textbooks has paralleled a burgeoning pedagogical literature that presents alternatives to the traditional Keynesian IS-LM/AD-AS framework that are suitable for undergraduates (Bofinger, Mayer, Wollmershäuser [6]; Carlin and Soskice [7]; Kapinos [8]; Romer [9]; Weerapana [10]; Weisse [11]). These developments have brought the undergraduate treatment of business cycle fluctuations much closer to the research frontier where monetary policy is modeled as an interest rate rule and the analysis is undertaken in * The views expressed in this paper are solely those of the authors.…”

Section: Introductionmentioning

confidence: 99%

“…To achieve the leap from the three-equation DSGE model to simpler models suitable for undergraduates found in textbooks and the recent pedagogical literature, several simplifications are used. Most importantly, inflationary expectations are typically assumed to be determined with adaptive expectations (Jones [4]; Mankiw [1]; Carlin and Soskice [7]; Kapinos [8]; Weisse [11]). This has important implications in terms of generating high inflation persistence with temporary shocks and imposing high output costs to disinflationary programs.…”

Section: Introductionmentioning

confidence: 99%

See 4 more Smart Citations

Extending the Textbook Dynamic AD-AS Framework with Flexible Inflation Expectations, Optimal Policy Response to Demand Changes, and the Zero-Bound on the Nominal Interest Rate

Alpanda¹,

Honig²,

Woglom³

2013

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Many popular macroeconomics textbooks have recently adopted the dynamic aggregate demand-aggregate supply framework to analyze business cycle fluctuations and the effects of monetary policy. This brings the textbook treatment much closer to the research frontier, although a major remaining difference is the treatment of inflation expectations. Textbook treatments typically assume adaptive expectations for tractability. In this paper, we extend the model presented in Mankiw [1] by incorporating a more flexible form of expectation formation that is determined as a weighted average of past inflation and the inflation target. This brings the treatment closer to rational expectations and allows for a discussion of costless disinflation. Monetary policy is assumed to follow a Taylor rule, but we allow for deviations from the rule to motivate a discussion regarding optimal monetary policy response to demand shocks. We also include a shock to the risk-premium on the interest rate relevant for demand relative to the policy rate set by the Central Bank, and impose the zero-bound on the nominal interest rate in the solution of the model. These features allow for the analysis of the recent financial crisis, monetary policy falling into a liquidity trap, and the desirability of a temporary increase in the inflation target. Finally, we make available an Excel sheet with which students can analyze the effect of shocks to the economy using impulse responses and dynamic aggregate demand-aggregate supply diagrams.

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Section: The Dad-das Modelmentioning

confidence: 99%

Section: The Dad-das Modelmentioning

confidence: 99%

Section: Persistence Of Shocksmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Extending the Textbook Dynamic AD-AS Framework with Flexible Inflation Expectations, Optimal Policy Response to Demand Changes, and the Zero-Bound on the Nominal Interest Rate

Alpanda¹,

Honig²,

Woglom³

2013

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Teaching the multiplier: The value of a quantitative approach

Turner

Wood

2014

International Review of Economics Education

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To create an engaging and motivating learning environment, we have developed software which is based on estimated parameters for the UK economy. The program allows students to both simulate the effects of economic policy on national income and its components as well as the flexibility to vary key parameters of interest in order to assess the impact on economic performance. In this paper we present the main features of the software and the model on which it is based. We discuss the potential uses of the software within a class-room context and consider two simulations. The first of these is a fiscal expansion designed to bring down unemployment and the second is an exogenous shock to consumption affecting the parameters of the consumption-income relationship. This paper advocates that students' understanding of theoretical models can be greatly enhanced by the addition of practical examples that can be used in lectures and tutorials as well as for independent study.

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Optimal Monetary Policy in Inflation Targeting Open Economies

Makin

2018

Economic Notes

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This paper presents a simple framework for analysing the operation and effectiveness of monetary policy in open economies in the spirit of aggregative approaches that are the mainstay of intermediate macroeconomic theory. Combining standard macroeconomic relations with precepts from international finance, it provides new lessons for the conduct of monetary policy under inflation targeting. It first confirms the classic Mundell-Fleming result that monetary policy is only effective as a short run stabilization instrument under floating exchange rates, yet goes further in showing that countercyclical monetary policy is incompatible with inflation targeting under fixed exchange rates. Second, it highlights the importance of anchoring inflation expectations as a means of inflation control. Third, it suggests how central banks should react to changes in the monetary stance abroad. Lastly, it demonstrates how monetary policy should respond to productivity improvement at home under floating exchange rates. (J.E.L.: E5, F41).

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A New Keynesian Workbook

Cited by 5 publications

References 22 publications

Extending the Textbook Dynamic AD-AS Framework with Flexible Inflation Expectations, Optimal Policy Response to Demand Changes, and the Zero-Bound on the Nominal Interest Rate

Extending the Textbook Dynamic AD-AS Framework with Flexible Inflation Expectations, Optimal Policy Response to Demand Changes, and the Zero-Bound on the Nominal Interest Rate

Teaching the multiplier: The value of a quantitative approach

Optimal Monetary Policy in Inflation Targeting Open Economies

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