Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/105925
Authors: 
Frische, Ulrich
Größl, Ingrid
Year of Publication: 
2010
Series/Report no.: 
IMK Working Paper 1/2010
Abstract: 
New Keynesian DSGE models propose a dynamic and expectational version of the old IS-LM paradigm. Acknowledging that the Taylor rule as a substitute for the LM-curve has its merits we show that standard DSGE models do not model how the central bank achieves its targets. In filling this gap we make evident that models neglecting a store-of-value function of money but still assuming a Taylor rule are inconsistent. Our major point concerns the-so called new Keynesian IS-curve. We prove that DSGE models which typically rest on the assumption of representative agents are unable to derive the IS-curve. This implies that these models lack the capability to analyse the role of savings as a a gap in aggregate demand. By assuming overlapping generations we make evident how this shortcoming can be avoided. We also show how OLG models add a richer dynamics to the standard DSGE approach.
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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