The BMW model as a static approximation of a foreward-looking New Keynesian macroeconomic model

Peter Bofinger (), Eric Mayer and Timo Wollmershäuser

No 42, W.E.P. - Würzburg Economic Papers from University of Würzburg, Department of Economics

Abstract: Over the last decade a new consensus model has emerged in monetary macroeconomics, labelled New Keynesian macroeconomics (Clarida et al., 1999). It consists of three simple building blocs: a forward-looking IS-equation that is derived from the optimization problem of a representative household, a forward-looking Phillips curve that maps the optimal pricing decisions of monopolistically competitive firms facing restrictions on their ability to adjust wages or prices in a flexible manner, and a relationship that describes how monetary policy is conducted. In Bofinger, Mayer and Wollmershäuser (2002a, 2002b) we developed the BMW model which takes this standard dynamic macro model to an intermediate audience in a down-to-earth fashion. This paper presents the linkages between our static BMW approach and a dynamic New Keynesian macro model.

Keywords: BMW model; New Keynesian macroeconomic model; optimal monetary policy (search for similar items in EconPapers)
JEL-codes: A20 E10 E50 F41 (search for similar items in EconPapers)
Date: 2003
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