scholarly journals Some Notes on Historical, Theoretical, and Empirical Background of DSGE Models

2014 ◽  
Vol 14 (2) ◽  
pp. 145-164 ◽  
Author(s):  
Martin Slanicay
Keyword(s):  
Monetary Policy ◽  
Empirical Evidence ◽  
Paradigm Shift ◽  
New Keynesian ◽  
Dsge Models ◽  
Nominal Rigidities ◽  
Pros And Cons ◽  
New Keynesian Models ◽  
Rbc Models

Abstract In this paper I present the historical, theoretical and empirical background of DSGE models. I show that the fundament of these models lies in optimizing agents framework and argue which impulses fueled the development of DSGE models. I demonstrate the evolution of DSGE models with an accent on the role and effects of the monetary policy, using distinction between RBC models and New Keynesian models. I explain the paradigm shift from the RBC models to the New Keynesian models by pointing out the main pitfalls of the RBC models and showing how adding nominal rigidities to the otherwise standard RBC models enhances empirical properties of these models. I also discuss how nominal rigidities are modeled in New Keynesian DSGE models and what the pros and cons of different approaches are. Finally, I review the most important New Keynesian theories of nominal rigidities and some of the empirical evidence on price and wage rigidities

scholarly journals Inflation in the Great Recession and New Keynesian Models

2015 ◽  
Vol 7 (1) ◽  
pp. 168-196 ◽  
Author(s):  
Marco Del Negro ◽  
Marc P. Giannoni ◽  
Frank Schorfheide
Keyword(s):  
Monetary Policy ◽  
Great Recession ◽  
Economic Activity ◽  
Financial Frictions ◽  
New Keynesian ◽  
Dsge Models ◽  
Dsge Model ◽  
Macroeconomic Variables ◽  
The Great Recession ◽  
New Keynesian Models

Several prominent economists have argued that existing DSGE models cannot properly account for the evolution of key macroeconomic variables during and following the recent Great Recession. We challenge this argument by showing that a standard DSGE model with financial frictions available prior to the recent crisis successfully predicts a sharp contraction in economic activity along with a protracted but relatively modest decline in inflation, following the rise in financial stress in 2008:IV. The model does so even though inflation remains very dependent on the evolution of economic activity and of monetary policy. (JEL E12, E31, E32, E37, E44, E52, G01)

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

Testing monetary policy optimality using volatility outcomes: a novel approach

2016 ◽  
Vol 16 (2) ◽  
Author(s):  
Federico Ravenna
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Optimal Policy ◽  
The United States ◽  
New Keynesian ◽  
Model Parameters ◽  
Dsge Models ◽  
Optimal Monetary Policy ◽  
Novel Approach ◽  
Interest Rate Volatility

AbstractWe propose a method to assess the efficiency of macroeconomic outcomes using the restrictions implied by optimal policy DSGE models for the volatility of observable variables. The method exploits the variation in the model parameters, rather than random deviations from the optimal policy. In the new Keynesian business cycle model this approach shows that optimal monetary policy imposes tighter restrictions on the behavior of the economy than is readily apparent. The method suggests that for the historical output, inflation and interest rate volatility in the United States over the 1984–2005 period to be generated by any optimal monetary policy with a high probability, the observed interest rate time series should have a 25% larger variance than in the data.

scholarly journals Fiscal and monetary policy in new Keynesian DSGE models

2014 ◽  
Author(s):  
Πέτρος Βαρθαλίτης
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Open Economy ◽  
Small Open Economy ◽  
New Keynesian ◽  
Dsge Models ◽  
Dsge Model ◽  
Keynesian Model ◽  
Monetary And Fiscal Policy ◽  
Fiscal And Monetary Policy

This thesis is about monetary and fiscal policy in New Keynesian DSGE models. Chapter 2 presents the baseline New Keynesian DSGE model. Monetary policy is in the form of a simple interest rate Taylor-type policy rule, while fiscal policy is exogenous. Chapter 3 extends the model of Chapter 2 to include fiscal policy. Now, both monetary and fiscal policy are allowed to follow feedback rules. Chapter 4 sets up a New Keynesian model of a semi-small open economy with sovereign risk premia. Finally, Chapter 5 builds a New Keynesian DSGE model consisting of two heterogeneous countries participating in a monetary union.Throughout most of the thesis, policy is conducted via "simple", "implementable" and "optimized" feedback policy rules. Using such rules, the aim of policy is twofold: firslty, it aims to stabilize the economy when the latter is hit by shocks; secondly, it aims to improve the economy's resource allocation.

scholarly journals The Relationship Between Nominal Wage and Price Flexibility: New Evidence

2020 ◽  
Author(s):  
Diego Solórzano ◽  
Huw Dixon
Keyword(s):  
New Keynesian ◽  
Nominal Wage ◽  
Nominal Rigidities ◽  
Labor Costs ◽  
Labor Share ◽  
Price Adjustments ◽  
New Keynesian Models ◽  
Price Flexibility ◽  
New Evidence ◽  
The Relationship

The frequencies at which prices and wages are adjusted, interpreted as price and wage flexibility, are key elements in workhorse models used for policy analysis. Yet, there is little evidence regarding the relationship between these two sources of nominal rigidities. Using two large and highly disaggregated price and wage microdata sets, this paper provides evidence that the industries changing more frequently wages reset prices more often. Once the frequency of wage adjustments is accounted for, the share of labor costs becomes less relevant in explaining the frequency of price changes, calling for a reinterpretation on previous findings that the labor share is a robust determinant of the frequency of price adjustments. The results in this study have implications for New Keynesian models' microfoundations, as their predictions have proven to be sensitive to the nominal rigidities assumptions.

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.

Sign in / Sign up

Export Citation Format

Share Document