Monetary Policy and Bubbles in a New Keynesian Model with Overlapping Generations

Active and passive monetary policy in an overlapping generations model

In a standard overlapping generations model, active monetary policy reinforces mechanisms that lead to equilibrium indeterminacy and to countercyclical behavior of young-age consumption. The policy rule which minimizes inflation volatility can be active or passive, depending on the characteristics of shocks and the risk aversion of households. Inflation forecast errors are always greater under ...

Robustly Optimal Monetary Policy in a Microfounded New Keynesian Model

We consider optimal monetary stabilization policy in a New Keynesian model with explicit microfoundations, when the central bank recognizes that private-sector expectations need not be precisely model-consistent, and wishes to choose a policy that will be as good as possible in the case of any beliefs close enough to model-consistency. We show how to characterize robustly optimal policy without...

Monetary policy regimes and inflation in the new-Keynesian model

This paper shows that plausible modifications to the Taylor rule for monetary policy can help explain several empirical anomalies to the behavior of inflation in the new-Keynesian general equilibrium model. The key anomalies considered are (1) the persistence of inflation, both in reduced form and after conditioning on inflation’s driving processes, (2) the positive correlation between the outp...

Optimal Monetary Policy: a New Keynesian View

As Paul Samuelson once put it: Adam Smith is dead and Keynes is dead; well— and Mises is dead, too. But Keynesianism is alive and well and back with a vengeance. Built on solid neoclassical foundations, this “new” Keynesianism, which features the effects of nominal rigidities in the presence of economic shocks and the existence of involuntary unemployment, represents the theoretical core of mod...

Asset Bubbles and Overlapping Generations