Arbeitspapier
Persistent stochastic shocks in a new Keynesian model with uncertainty
Both from theoretical and practical viewpoints, I argue that the New Keynesian model's forward-looking IS curve should be derived by quadratic approximation. This leaves uncertainty in the basic three-equation model. After adding exogenous AR(1) processes, I examine the results by numerical simulation. First, I derive a reduced-form solution for the nominal rate of interest which describes the equilibrium behavior under optimal discretion. Focusing on the persistence parameter, the equilibrium will be simulated and compared to the model version containing the certainty equivalence. In a next step, impulse response functions show the adjustments over time after a cost shock. As a result, accounting for uncertainty can lead to lower interest rates of roughly 25 basis points compared to the case without uncertainty.
- Sprache
-
Englisch
- Erschienen in
-
Series: Research Papers in Economics ; No. 5/16
- Klassifikation
-
Wirtschaft
General Aggregative Models: Keynes; Keynesian; Post-Keynesian
General Aggregative Models: Forecasting and Simulation: Models and Applications
Interest Rates: Determination, Term Structure, and Effects
Money and Interest Rates: Forecasting and Simulation: Models and Applications
Monetary Policy
- Thema
-
Impulse Response
New Keynesian Model
Persistent Stochastic Shocks
Quadratic Approximation
Simulation
Uncertainty
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Kranz, Tobias
- Ereignis
-
Veröffentlichung
- (wer)
-
Universität Trier, Fachbereich IV – Volkswirtschaftslehre
- (wo)
-
Trier
- (wann)
-
2016
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:44 MEZ
Datenpartner
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Objekttyp
- Arbeitspapier
Beteiligte
- Kranz, Tobias
- Universität Trier, Fachbereich IV – Volkswirtschaftslehre
Entstanden
- 2016
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