The Bmw Model: A New Framework for Teaching Monetary Economics

Journal of Economic Education, Forthcoming

Posted: 8 Apr 2005

See all articles by Peter Bofinger

Peter Bofinger

University of Würzburg - Institute of Economics and Social Sciences

Eric Mayer

University of Würzburg - Institute of Economics and Social Sciences

Timo Wollmershaeuser

Ifo Institute for Economic Research; CESifo (Center for Economic Studies and Ifo Institute)

Abstract

Although the IS/LM-AS/AD model is still the central tool of macroeconomic teaching in most macroeconomic textbooks, it has been criticized by several economists. Colander demonstrated that the framework is logically inconsistent, Romer showed that it is unable to deal with a monetary policy that uses the interest rate as its operating target, Walsh criticized that it is not well suited for an analysis of inflation targeting. The authors present a framework, that develops the Romer approach into a very simple, but at the same time comprehensive macroeconomic model. In spite of its simplicity it can carry the main insights of the New Keynesian macroeconomis to an intermediate level and deal with issues like inflation targeting, monetary policy rules, and central bank credibility.

Keywords: inflation targeting, monetary policy, New Keynesian macroeconomics, optimal interest rate rules, simple rules

JEL Classification: A20, E10, E50, F41

Suggested Citation

Bofinger, Peter and Mayer, Eric and Wollmershaeuser, Timo, The Bmw Model: A New Framework for Teaching Monetary Economics. Journal of Economic Education, Forthcoming, Available at SSRN: https://ssrn.com/abstract=683743

Peter Bofinger (Contact Author)

University of Würzburg - Institute of Economics and Social Sciences ( email )

Sanderring 2
Wuerzburg, 97070
Germany
+49 931 312 944/5 (Phone)
+49 931 312 775 (Fax)

Eric Mayer

University of Würzburg - Institute of Economics and Social Sciences ( email )

Sanderring 2
Wuerzburg, 97070
Germany

Timo Wollmershaeuser

Ifo Institute for Economic Research ( email )

Poschingerstrasse 5
Munich, 81879
Germany
+49 89 9224 1406 (Phone)
+49 89 9224 1462 (Fax)

HOME PAGE: http://www.ifo.de/link/wollmershaeuser_t.htm

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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