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...

The paper is concerned with the traditional "assignment" to be found in many textbooks that holds central bankers responsible for inflation – and inflation only – while government politicians are recommended to care for the short-term stabilisation of the economy (or not to...

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...

When the government issues long-term bonds, the optimal time-consistent fiscal and monetary policy is to consolidate debt in a liquidity trap by increasing taxes and by taming public spending. This prescription is at odds with large deficit-spending undertaken in the US during previous liquidity...

In this paper we consider inflation and government debt dynamics when monetary policy employs a global interest rate rule and private agents' forecasts using adaptive learning.Because of the zero lower bound on interest rates, active interest rate rules are known to imply the existence of a...

In this paper we introduce an application of the supply-side channel for fiscal policy to the basic New Keynesian model.We use a proportional tax rate instead of lump sum tax and introduce the distortions of a tax wedge.We derive a closed economy forward-looking model with government consumption...

When the government issues long-term bonds, the optimal time-consistent fiscal and monetary policy is to consolidate debt in a liquidity trap by increasing taxes and by taming public spending. This prescription is at odds with large deficit-spending undertaken in the US during previous liquidity...

In Evans, Guse, and Honkapohja (2008) the intended steady state is locally but not globally stable under adaptive learning, and unstable deflationary paths can arise after large pessimistic shocks to expectations. In the current paper a modified model is presented that includes a locally stable...

In this paper we consider inflation and government debt dynamics when monetary policy employs a global interest rate rule and private agents’ forecasts using adaptive learning. Because of the zero lower bound on interest rates, active interest rate rules are known to imply the existence of a...

In this paper we introduce an application of the supply-side channel for fiscal policy to the basic New Keynesian model. We use a proportional tax rate instead of lump sum tax and introduce the distortions of a tax wedge. We derive a closed economy forward-looking model with government...