Cahier 2015-30

Title:The New Keynesian Model: an Interpretation of Michael Woodford's "Interest and Prices"
Abstract:Over the past fifteen years, the “New Keynesian Model” has occupied a central place in macro-monetary economics. Michael Woodford’s “Interest and Prices” (2003) provides the smartest and most general presentation of this model. However, due to its non-linear and somehow fragmented structure, comprehension of this work may be challenging for readers. Sketchiness of analytical resolutions is another obstacle to full understanding. In order to cope with these difficulties, this paper suggests a unified, exhaustive and detailed derivation of Woodford’s basic model. Beyond a mere re-examination of Woodford’s analytical work, the paper investigates the functioning of the model and brings to light its implicit assumptions. It also shows the absence of national savings in the model, and provides an unpublished formal expression of the transmission mechanism of monetary policy.
Keyword(s):new Keynesian model – dynamic stochastic equilibrium modelling – rational expectations – monetary policy
Auteur(s) :Martin ZUMPE
JEL Class.:E12, E32, D84, E52

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