EconPapers    
Economics at your fingertips  
 

What Happens behind the New Keynesian IS? Technical Notes

Roberto Tamborini ()

Rivista italiana degli economisti, 2014, issue 2, 203-226

Abstract: The aim of these notes is to point out and address a few technical problems concerning the so-called «IS» equation in the New Keynesian macroeconomic model. First, in the basic NK model with sole consumption, the consumption function is not properly derived from first principles (the intertemporal budget constraint is missing), and when it is, the IS as locus of aggregate demand-supply equality may not exist. Second, when investment is introduced, and the investment-saving equalization mechanism is properly worked out, the resulting IS locus is different from the NK one, with different dynamic properties and different implications for interest-rate control. In particular, the paper shows that a simple linear feed-back rule with respect to output gaps is necessary and sufficient to drive the economy to the «zero-gaps» steady state. Yet the dynamic path of output becomes (endogenously) oscillatory. It is also shown that the same implications arise for inflation control too.

Keywords: New Keynesian Macroeconomics; Investment-Saving Imbalances; Monetary Policy Rules. (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed

Downloads: (external link)
https://www.rivisteweb.it/download/article/10.1427/77082 (application/pdf)
https://www.rivisteweb.it/doi/10.1427/77082 (text/html)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mul:jqat1f:doi:10.1427/77082:y:2014:i:2:p:203-226

Access Statistics for this article

Rivista italiana degli economisti is currently edited by Giuliano Conti

More articles in Rivista italiana degli economisti from Società editrice il Mulino
Bibliographic data for series maintained by ().

 
Page updated 2021-01-21
Handle: RePEc:mul:jqat1f:doi:10.1427/77082:y:2014:i:2:p:203-226