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The 3-equation new Keynesian model - a graphical exposition

Carlin, Wendy and Soskice, David (2005) The 3-equation new Keynesian model - a graphical exposition. Contributions to Macroeconomics, 5 (1, Art). pp. 1-38. ISSN 1935-1690

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Abstract

We develop a graphical 3-equation New Keynesian model for macroeconomic analysis to replace the traditional IS-LM-AS model. The new graphical IS-PC-MR model is a simple version of the one commonly used by central banks and captures the forward-looking thinking engaged in by the policy maker. Within a common framework, we compare our model to other monetary-rule based models that are used for teaching and policy analysis. We show that the differences among the models centre on whether the central bank optimizes and on the lag structure in the IS and Phillips curve equations. We highlight the analytical and pedagogical advantages of our preferred model. The model can be used to analyze the consequences of a wide range of macroeconomic shocks, to identify the structural determinants of the coefficients of a Taylor type interest rate rule, and to explain the origin and size of inflation bias.

Item Type: Article
Official URL: http://www.bepress.com/bejm/2005.html
Additional Information: © 2005 The Berkeley Electronic Press
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Journal of Economic Literature Classification System: N - Economic History > N1 - Macroeconomics and Monetary Economics; Growth and Fluctuations
B - Schools of Economic Thought and Methodology > B2 - History of Economic Thought since 1925 > B22 - Macroeconomics
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E21 - Macroeconomics: Consumption; Saving; Aggregate Physical and Financial Consumer Wealth
Sets: Departments > Economics
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 19 Sep 2008 15:55
URL: http://eprints.lse.ac.uk/16559/

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