The Bmw Model as a Static Approximation of a Forward-Looking New Keynesian Macroeconomic Model
Wuerzburg Economics Working Paper No. 42
22 Pages Posted: 5 Feb 2004
There are 2 versions of this paper
The Bmw Model as a Static Approximation of a Forward-Looking New Keynesian Macroeconomic Model
The Bmw Model as a Static Approximation of a Forward-Looking New-Keynesian Macroeconomic Model
Date Written: November 2003
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 Wollmershaeuser (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
JEL Classification: A20, E10, E50, F41
Suggested Citation: Suggested Citation
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