Arend, Mario (2007): An Analytical Solution for the Interest Rate Reaction Function in a Neo- Keynesian Economy Using the Undetermined Coefficients Method.
Download (127kB) | Preview
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.
|Item Type:||MPRA Paper|
|Original Title:||An Analytical Solution for the Interest Rate Reaction Function in a Neo- Keynesian Economy Using the Undetermined Coefficients Method|
|Keywords:||undetermined coefficients method; neo-keynesian; rational expectations; interest rate; foward-looking; central bank optimization; new keynesian|
|Subjects:||E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61 - Optimization Techniques ; Programming Models ; Dynamic Analysis
|Depositing User:||Mario Arend|
|Date Deposited:||18. Oct 2009 04:35|
|Last Modified:||17. Feb 2013 03:01|
Clarida, R., Galí, J. & Gertler, M. (1999), "The Science of Monetary Policy: A New Keynesian Perspective", Journal of Economic Literature, Volume 37, Nº 4, December 2004.
Collins, S. & Siklos, P., "Optimal Monetary Policy Rules and Inflation Targets: Are Australia, Canada, and New Zeland Different from the US?", Open Economies Review, March 2004.
Orphanides, A. (1998), "Monetary Policy Evaluation With Noisy Information", Board of Governors of Federal Reserve System, October 1998.
Rosende, F. (2000), "Teoría Macroeconómica: Ciclos Económicos, Crecimiento e Inflación", Universidad Católica de Chile Editions, March 2000.
Rudebusch, G. & Svensson, L. (1998), "Policy Rules for Inflation Targeting", NBER Conference on Monetary Policy Rules, Febraury 1998.
Svensson, L. (1997), "Inflation Targeting: Some Extensions", Institute for International Economics Studies, Stockholm University, Febraury 1997.
Svensson, L. (1998a), "Inflation Targeting as a Monetary Policy Rule", National Bureau of Economic Research, Working Paper 6790, November 1998.
Svensson, L. (1998b), "Open Economy Inflation Targeting", Institute for International Economics Studies, Stockholm University, April 1998.