Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/97764
Authors: 
Schmidt, Sebastian
Wieland, Volker
Year of Publication: 
2012
Series/Report no.: 
IMFS Working Paper Series 52
Abstract: 
This chapter aims to provide a hands-on approach to New Keynesian models and their uses for macroeconomic policy analysis. It starts by reviewing the origins of the New Keynesian approach, the key model ingredients and representative models. Building blocks of current-generation dynamic stochastic general equilibrium (DSGE) models are discussed in detail. These models address the famous Lucas critique by deriving behavioral equations systematically from the optimizing and forward-looking decision-making of households and firms subject to well-defined constraints. State-of-the-art methods for solving and estimating such models are reviewed and presented in examples. The chapter goes beyond the mere presentation of the most popular benchmark model by providing a framework for model comparison along with a database that includes a wide variety of macroeconomic models. Thus, it offers a convenient approach for comparing new models to available benchmarks and for investigating whether particular policy recommendations are robust to model uncertainty. Such robustness analysis is illustrated by evaluating the performance of simple monetary policy rules across a range of recently-estimated models including some with financial market imperfections and by reviewing recent comparative findings regarding the magnitude of government spending multipliers. The chapter concludes with a discussion of important objectives for on-going and future research using the New Keynesian framework.
Subjects: 
Monetary macroeconomics
Keynesian models
New Keynesian models
dynamic stochastic general equilibrium models
New Neoclassical synthesis
model comparison
rational expectations
policy evaluation
policy robustness
monetary and fiscal policy
JEL: 
C51
C52
C61
C68
E12
E17
E52
E63
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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