We use a simple New Keynesian model, with firm specific capital, non-zero steady-state inflation, long-run risks and … rate by 150 basis points causes output and inflation volatility to rise around 10% above their steady-state standard … deviations from the policy rule and the results are re-enforced by the presence of non-zero trend inflation. …

inflation and not enough to spreads,and yield larger fluctuations in response to risk shocks. Reaction curves display shifts …

and inflation in these models through a real interest rate channel is shown to be misguided. A decline in output and … inflation is consistent with a decline, increase, or no change in the real interest rate. The expected path of Taylor rule … shocks and the New-Keynesian Phillips Curve are key for inflation and output; the real rate largely reflects consumption …