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An Analytical Solution for the Interest Rate Reaction Function in a Neo- Keynesian Economy Using the Undetermined Coefficients Method

Mario Arend

MPRA Paper from University Library of Munich, Germany

Abstract: In this research note I propose the use of the undetermined coefficients method as an alternative approach to solve the Central Bank optimization problem in a neo-keynesian economy. The advantage of using this method is that it provides a theory as to how rational expectations are constructed, and how shocks in the economy are propagated, in order to find an analytical solution for the interest rate reaction function in an economy with a forward-looking behavior.

Keywords: undetermined coefficients method; neo-keynesian; rational expectations; interest rate; foward-looking; central bank optimization; new keynesian (search for similar items in EconPapers)
JEL-codes: C61 E43 E52 (search for similar items in EconPapers)
Date: 2007-12-01
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