The Bmw Model as a Static Approximation of a Forward-Looking New-Keynesian Macroeconomic Model

Review of Economics, Vol. 54, No. 3, pp. 231-247, 2003

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)

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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, 2004) we developed the BMW model which takes this standard dynamic macromodel 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 macromodel.

Keywords: BMW model, New Keynesian macroeconomic model, optimal monetary policy

JEL Classification: A20, E10, E52, E58, F41

Suggested Citation

Bofinger, Peter and Mayer, Eric and Wollmershaeuser, Timo, The Bmw Model as a Static Approximation of a Forward-Looking New-Keynesian Macroeconomic Model. Review of Economics, Vol. 54, No. 3, pp. 231-247, 2003, Available at SSRN: https://ssrn.com/abstract=683744

Peter Bofinger

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 (Contact Author)

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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