The New Keynesian cross

Florin Bilbiie

Journal of Monetary Economics, 2020, vol. 114, issue C, 90-108

Abstract: The New Keynesian (NK) cross is a graphical and analytical apparatus for heterogeneous-agent (HANK) models expressing key aggregate demand objects—MPC and multipliers—as functions of heterogeneity parameters. It affords analytical insights into monetary, fiscal, and forward guidance multipliers, and replicates the aggregate implications of quantitative HANK. The key parameter—the constrained agents’ income elasticity to aggregate income—depends on fiscal redistribution: when it is larger (smaller) than one, the effects of policies and shocks are amplified (dampened). With uninsurable idiosyncratic uncertainty, this translates intertemporally—through compounding (discounting) in the aggregate Euler equation—into further amplification (dampening) of future shocks.

Keywords: Heterogeneity; Aggregate demand; Keynesian cross; Monetary policy; Fiscal multipliers; Redistribution; Forward guidance; Hand-to-mouth; HANK; TANK (search for similar items in EconPapers)
JEL-codes: E21 E31 E40 E44 E50 E52 E58 E60 E62 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (79)

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Working Paper: The New Keynesian Cross (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:114:y:2020:i:c:p:90-108

DOI: 10.1016/j.jmoneco.2019.03.003

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