Woodford (2007) argues that it is not appropriate to regard inflation in the steady state of New Keynesian models as determined by steady-state money growth. Woodford instead argues that the intercept term in the monetary authority’s interest-rate policy rule determines steady-state inflation. In this paper, I offer an alternative interpretation of steady-state behavior, according to which it i...

The financial sector received little attention in the literature on macroeconomic policy, growth and development until fairly recently. In fact, post-war macroeconomics in both the Keynesian and monetarist traditions paid little or no attention to banks and other financial institutions. This is somewhat ironic because both approaches were well aware of the role of banks in propagating the Great...

We propose a classroom experiment implementing a simple version of a New Keynesian model that is suitable for courses in intermediate macroeconomics and money and banking. Students play either the role of the central bank or members of the private sector. The central banker is charged with setting interest rates so as to meet twin objectives for inflation and the output gap. Alternatively, the ...

ver the past several decades, economists have devoted ever-growing effort to developing economic models to help us understand how changes in interest rates brought about by monetary policy actions affect the production and provision of goods and services in the economy. Although New Keynesian models have broad appeal in explaining how changes in the money stock can affect business activity, the...

This article explores dominant ideological framings of the economic crisis that began in 2008, by examining shifting meanings of consumer citizenship in the US. The consumer citizen was a central figure in Keynesian ideology—one that encapsulated important assumptions about the proper relationship between production and consumption and the appropriate arenas for citizen engagement with the econ...

This paper introduces heterogeneous expectations into a New Keynesian model. Our primary theoretical contribution is to provide an aggregation result for a model with nominal rigidities and heterogeneous bounded rationality. We incorporate bounded rationality at the individual agent level and determine restrictions on expectations operators sufficient to imply aggregate IS and AS relations of t...

Despite sound theoretical foundations a drawback of the New Keynesian model is its inability to generate adequate persistence in the variables it seeks to explain. A common solution is to modify the model to include lagged variables. However, this is unsatisfactory as many such modifications depart from the microeconomic underpinnings of the original model. This paper presents results from simu...