This chapter aims to provide a hands-on approach to New Keynesian models and their uses for macroeconomic policy analysis. It starts by reviewing the origins of the New Keynesian approach, the key model ingredients and representative models. Building blocks of current-generation dynamic...

This chapter aims to provide a hands-on approach to New Keynesian models and their uses for macroeconomic policy analysis. It starts by reviewing the origins of the New Keynesian approach, the key model ingredients and representative models. Building blocks of current-generation dynamic...

Since the birth of the natural rate hypothesis, the conventional notion that short-term output simply fluctuates around a relatively stable long-term trend became the norm in modern macroeconomics, including in the standard New Keynesian DSGE model. However, the global financial crisis (GFC) led...

In many recent empirical studies of the Federal Open Market Committee's (FOMC's) interest rate rule, the parameters of the rule are allowed to change over time. However, within this literature, there is no consensus about the nature of the parameter change. Some authors, such as Sims and Zha...

Using a small-scale microfounded DSGE model with Markov switching in shock variances and policy parameters, we show that the data-preferred description of US monetary policy is a time consistent targeting rule with a marked increase in conservatism after the 1970s. However, the Fed lost its...

This paper aims to contribute to the empirical literature on the international spillovers of US monetary policy, whilst accounting for fiscal policy. The main motivation of the paper is to identify the way in which fiscal policy is able to influence the monetary transmission mechanism and...

The central banks introduce and implement the monetary and financial stabilities policies, going from the accurate estimations of national macro-financial indicators such as the Gross Domestic Product (GDP). Analyzing the dependence of the GDP on the time, the central banks accurately estimate...

We jointly estimate a New Keynesian Policy Model with a Gaussian affine no-arbitrage specification of the term structure of interest rates, and assess how important inflation, output and monetary policy shocks are as sources of fluctuations in interest rates and the term premium. To mitigate...

We model Greek monetary policy in the 1990s and use our findings to address two interrelated questions. First, how was monetary policy conducted in the 1990s so that the hitherto highest-inflation EU country managed to join the euro by 2001? Second, how compatible is the current ECB monetary...

We model pre-euro Spanish monetary policy and use our findings to assess the compatibility of the interest rates set by the ECB since 1999 with Spanish macrofundamentals. We find that in the 1990s Spain implemented successfully a monetary strategy tailored to its own domestic fundamentals; and...