scholarly journals INFLATION RISK AND OPTIMAL MONETARY POLICY

2009 ◽  
Vol 13 (S1) ◽  
pp. 58-75 ◽  
Author(s):  
William T. Gavin ◽  
Benjamin D. Keen ◽  
Michael R. Pakko
Keyword(s):  
Monetary Policy ◽  
Term Structure ◽  
New Keynesian ◽  
Optimal Monetary Policy ◽  
Monetary Policies ◽  
Inflation Risk ◽  
Long Run ◽  
Order Of Magnitude ◽  
New Keynesian Models ◽  
Sticky Wages

This paper shows that the optimal monetary policies recommended by New Keynesian models still imply a large amount of inflation risk. We calculate the term structure of inflation uncertainty in New Keynesian models when the monetary authority adopts the optimal policy. When the monetary policy rules are modified to include some weight on a price path, the economy achieves equilibria with substantially lower long-run inflation risk. With either sticky prices or sticky wages, a price path target reduces the variance of inflation by an order of magnitude more than it increases the variability of the output gap.

scholarly journals Asset Returns, the Business Cycle and the Labor Market

2013 ◽  
Vol 14 (3) ◽  
pp. 372-397 ◽  
Author(s):  
Burkhard Heer ◽  
Alfred Maußner
Keyword(s):  
Labor Market ◽  
Business Cycle ◽  
Equity Premium ◽  
Working Hours ◽  
New Keynesian ◽  
Monetary Shocks ◽  
Productivity Shocks ◽  
New Keynesian Models ◽  
The Business Cycle ◽  
Sticky Wages

Abstract We review the labor market implications of recent real-business cycle and New Keynesian models that successfully replicate the empirical equity premium. We document the fact that all models reviewed in this article that do not feature either sticky wages or immobile labor between two production sectors as in Boldrin et al. (2001) imply a negative correlation of working hours and output that is not observed empirically. Within the class of Neo-Keynesian models, sticky prices alone are demonstrated to be less successful than rigid nominal wages with respect to the modeling of the labor market stylized facts. In addition, monetary shocks in these models are required to be much more volatile than productivity shocks to match statistics from both the asset and labor market.

scholarly journals An econometric analysis of the effectiveness of fiscal and monetary policies in India

2021 ◽  
Author(s):  
Anand Nadar
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Fiscal Policy ◽  
Money Supply ◽  
Series Data ◽  
Monetary Policies ◽  
Indian Economy ◽  
Long Run ◽  
Short Run ◽  
Bound Test

This study investigatesthe effectiveness of fiscal policy and monetary policy in India. We collected thetime series data for India ranging from 1960 to 2019 from World Development Indicator (WDI). Weapplied the bound test co-integration approach to check the long-run relationship between fiscalpolicy, monetary policy, and economic growth in the context of Indian economy. The short-run andlong-run effects of fiscal policy and monetary policy have been estimated using ARDL models. Theresults showed that there is a long-run relationship between fiscal and monetary policies witheconomic growth. The estimated short-run coefficients indicated that a few immediate short runimpacts of fiscal and monetary policies are insignificant. However, the short-run impacts becomesignificant as time passes. The long-run results suggested that the long-run impact of both fiscal andmonetary policies on economic growth are positive and significant. More specifically, the GDP levelincreases if the money supply and government expenditure increase (Expansionary fiscal andmonetary policies). On the other hand, the GDP level decreasesif the money supply and governmentexpenditure decrease (contractionary fiscal and monetary policies). Therefore, this studyrecommends to use expansionary policies to spur the Indian economy.

Effective Monetary Policy Strategies in New Keynesian Models: A Reexamination

2015 ◽  
Vol 29 (1) ◽  
pp. 289-344 ◽  
Author(s):  
Hess Chung ◽  
Edward Herbst ◽  
Michael T. Kiley
Keyword(s):  
Monetary Policy ◽  
New Keynesian ◽  
New Keynesian Models ◽  
Policy Strategies

MPCs, MPEs, and Multipliers: A Trilemma for New Keynesian Models

2021 ◽  
pp. 1-41
Author(s):  
Adrien Auclert ◽  
Bence Bardóczy ◽  
Matthew Rognlie
Keyword(s):  
Labor Supply ◽  
New Keynesian ◽  
Fiscal Multipliers ◽  
New Keynesian Models ◽  
Sticky Wages

Abstract We show that New Keynesian models with frictionless labor supply face a challenge: given standard parameters, they cannot simultaneously match plausible estimates of marginal propensities to consume (MPCs), marginal propensities to earn (MPEs), and fiscal multipliers. A HANK model with sticky wages provides a solution to this trilemma.

scholarly journals Inflation Risk and Optimal Monetary Policy

2007 ◽  
Author(s):  
William T. Gavin ◽  
Benjamin D. Keen ◽  
Michael R. Pakko
Keyword(s):  
Monetary Policy ◽  
Optimal Monetary Policy ◽  
Inflation Risk

scholarly journals Dynamic Debt Deleveraging and Optimal Monetary Policy

2020 ◽  
Vol 12 (2) ◽  
pp. 310-350 ◽  
Author(s):  
Pierpaolo Benigno ◽  
Gauti B. Eggertsson ◽  
Federica Romei
Keyword(s):  
Monetary Policy ◽  
Lower Bound ◽  
New Keynesian ◽  
New Keynesian Model ◽  
Optimal Monetary Policy ◽  
Natural Rate ◽  
Keynesian Model ◽  
Natural Rate Of Interest ◽  
Standard Framework

This paper proposes a postcrisis New Keynesian model that incorporates agent heterogeneity in borrowing and lending with a minimum set of assumptions. Unlike the standard framework, this model makes the natural rate of interest endogenous and dependent on macroeconomic policy. The main application is to study optimal monetary policy at the zero lower bound (ZLB). Such policy succeeds in raising the natural rate of interest by creating an environment that speeds up deleveraging and thus endogenously shortens the crisis and the duration of binding ZLB. Inflation should be front-loaded and should overshoot its long-term target during the ZLB episode. (JEL E12, E31, E32, E43, E52)

scholarly journals ROBUST MONETARY POLICY IN A NEW KEYNESIAN MODEL WITH IMPERFECT INTEREST RATE PASS-THROUGH

2015 ◽  
Vol 20 (6) ◽  
pp. 1504-1526 ◽  
Author(s):  
Rafael Gerke ◽  
Felix Hammermann
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Central Bank ◽  
Model Misspecification ◽  
New Keynesian ◽  
Optimal Monetary Policy ◽  
Loan Rate ◽  
Keynesian Model ◽  
Pass Through ◽  
Policy Shifts

We use robust control to study how a central bank in an economy with imperfect interest rate pass-through conducts monetary policy if it fears that its model could be misspecified. We find that, first, whether robust optimal monetary policy under commitment responds more cautiously or more aggressively depends crucially on the source of shock. Imperfect pass-through amplifies the robust policy. Second, if the central bank is concerned about uncertainty, it dampens volatility in the inflation rate preemptively but accepts higher volatility in the output gap and loan rate. However, for highly sticky loan rates, insurance against model misspecification becomes particularly pricy. Third, if the central bank fears uncertainty only in the IS equation or the loan rate equation, the robust policy shifts its concern for stabilization away from inflation.

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