According to the Taylor principle a central bank should adjust the nominal interest rate by more than one-for-one in response to changes in current inflation. Most of the existing literature supports the view that by following this simple recommendation a central bank can avoid being a source of...

The lumpy nature of plant-level investment is generally not taken into account in the context of New Keynesian monetary theory (see, e.g., Christiano et al., 2005; Woodford, 2005). Our main result shows that if this theory is augmented by a standard model of lumpy investment, monetary policy shocks...

We consider a medium-scale New-Keynesian model which combines features that have been shown to explain fairly well postwar U.S. business cycles. Our main result demonstrates that the determinacy properties of forward-looking interest rate rules resemble, at least qualitatively, the corresponding...

We demonstrate that the presence of an empirically plausible labor adjustment decision at the firm level rationalizes strategic complementarities in price-setting which help explain inflation dynamics. Those strategic complementarities are typically assumed away in the related existing...

The Taylor Principle is often used to explain macroeconomic stability (see, e.g., Clarida et al. 2000). The reason is that this simple principle guarantees determinacy, i.e., local uniqueness of rational expectations equilibrium, in many New Keynesian models. However, analyses of determinacy are...

New-Keynesian (NK) models can only account for the dynamic effects of monetary policy shocks if it is assumed that aggregate capital accumulation is much smoother than it would be the case under frictionless firm-level investment, as discussed in Woodford (2003, Ch. 5). We find that lumpy...

We model firm-owned capital in a stochastic dynamic New-Keynesian general equilibrium model à la Calvo. We find that this structure implies equilibrium dynamics which are quantitatively di¤erent from the ones associated with a benchmark case where households accumulate capital and rent it to...

According to the Taylor principle a central bank should adjust the nominal interest rate by more than one for one in response to changes in current in?ation. Most of the existing literature supports the view that by following this simple recommendation a central bank can avoid being a source of...

We discuss some di?culties in a dynamic New-Keynesian model with staggered price setting à la Calvo and a convex capital adjustment cost at the firm level, as considered by Woodford (2003, Ch. 5). It is shown that the implied simultaneous price setting and investment decision has not been...