On the mechanics of New-Keynesian models

Peter Rupert and Roman Sustek

Journal of Monetary Economics, 2019, vol. 102, issue C, 53-69

Abstract: The monetary transmission mechanism in New-Keynesian models is put to scrutiny. We show that, contrary to the conventional view, the transmission mechanism does not operate through the real interest rate channel. Instead, equilibrium inflation is approximately determined as in a flexible-price model; output is then pinned down by the New-Keynesian Phillips curve. The real rate only reflects the feasibility to keep consumption smooth when income changes. Contractionary monetary policy shocks reducing output and inflation are consistent with an increase, decline, or no change in the real rate. Consistency with the real rate channel is observational, not structural.

Keywords: New-Keynesian models; Monetary transmission mechanism; Real interest rate channel; Capital (search for similar items in EconPapers)
JEL-codes: E30 E40 E50 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

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Related works:
Working Paper: On the Mechanics of New Keynesian Models (2016)
Working Paper: On the mechanics of New-Keynesian models (2016)
Working Paper: On the Mechanics of New-Keynesian Models (2016)
Working Paper: On the Mechanics of New-Keynesian Models (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:102:y:2019:i:c:p:53-69

DOI: 10.1016/j.jmoneco.2019.01.024

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