The New Keynesian Approach to Dynamic General Equilibrium Modeling: Models, Methods and Macroeconomic Policy Evaluation

Sebastian Schmidt and Volker Wieland

Chapter Chapter 22 in Handbook of Computable General Equilibrium Modeling, 2013, vol. 1, pp 1439-1512 from Elsevier

Abstract: 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 stochastic general equilibrium models are discussed in detail. These models address the famous Lucas critique by deriving behavioral equations systematically from the optimizing and forward-looking decision making of households and firms subject to well-defined constraints. State-of-the-art methods for solving and estimating such models are reviewed and presented in examples. The chapter goes beyond the mere presentation of the most popular benchmark model by providing a framework for model comparison along with a database that includes a wide variety of macroeconomic models. Thus, it offers a convenient approach for comparing new models to available benchmarks and for investigating whether particular policy recommendations are robust to model uncertainty. Such robustness analysis is illustrated by evaluating the performance of simple monetary policy rules across a range of recently estimated models, including some with financial market imperfections, and by reviewing recent comparative findings regarding the magnitude of government spending multipliers. The chapter concludes with a discussion of important objectives for ongoing and future research using the New Keynesian framework.

Keywords: Monetary macroeconomics; Keynesian models; New Keynesian models; dynamic stochastic general equilibrium models; New Neoclassical synthesis; model comparison; rational expectations; policy evaluation; policy robustness; monetary and fiscal policy (search for similar items in EconPapers)
JEL-codes: C51 C52 C61 C68 E12 E17 E52 E63 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Working Paper: The new keynesian approach to dynamic general equilibrium modeling: Models, methods, and macroeconomic policy evaluation (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:hacchp:v:1:y:2013:i:c:p:1439-1512

DOI: 10.1016/B978-0-444-59568-3.00022-5

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