These notes contain the derivations for results stated without proof in Hornstein (2007). First, I derive the log-linear approximation of the inflation dynamics in the Calvo-model with elements of backward-looking pricing when the approximation takes place around a positive average inflation...

Use of the New Keynesian model to identify shocks points to contractionary monetary policy as the cause of the Great Recession in the Eurozone.

Macroeconomics is moving toward a New Neoclassical Synthesis, which like the synthesis of the 1960s melds Classical with Keynesian ideas. This paper describes the key features of the new synthesis and its implications for the role of monetary policy. We find that the New Neoclassical Synthesis...

What is the source of interest rate volatility? Why do low interest rates precede business cycle booms? Most observers tend to assume that monetary policy is largely responsible for it. Indeed, a standard real business cycle model delivers rather small fluctuations in real interest rates. Here,...

Thirty years ago it appeared that the best strategy for improving economic forecasts was to build bigger, more detailed models. As the costs of computing plummeted, considerable detail was added to models and more elaborate statistical techniques became feasible.

In the classical macroeconomic models constructed by Lucas (1972, 1975) and Barro (1976), monetary aggregates are assumed to be generated by a logarithmic random walk. This specification implies that all monetary growth is (a) unanticipated and (b) permanent.