Assignment 5 - EC7210 Flashcards
Hur är alla variabler i den Ny-Keynesianska modellen uttryckta?
Som log deviations from stedy state.
Förändroingar i dem är alltså t.ex inflation högre än inflationsmål på 0% osv.
Berätta om yt = Et[yt+1] - (1/θ)rt + uy_t
Var den kommer ifrån och vilka antaganden som har behövts göras osv.
New-Keynesian IS curve. It is derived from the consump-
tion Euler equation given the assumption that the economy is closed. It thus represent the demand side of the economy. Naturally, a positive deviation of the real interest rate from its steady state value has a negative impact on real output since this increases the price of consumption today relative to tomorrow. In particular, a one percent increase in the real interest rate decreases output today by 1/θ percent, where 1/θ is the intertemporal elasticity of substitution.
Berätta om πt = βEt[πt+1] + κyt + uπ_t
New-Keynesian Phillips curve.
Denna härleds från företagen sätter de optimala priset givet calvo pricing, hur priserna avviker fråpn det optimala flexpriset och från inflationsdynamiken givet kalvo-priser.
The NKPC derived from these equations describes the price dynamics of the economy which are determined by optimal firm behaviour, constrained by the demand side of the economy, and subject to uncertainty due to sticky prices (recall, firms don’t know for how long their prices will be in place). It says that current inflation depends on the discounted future inflation rate, the output gap and a random shock to inflation.
Vilka är några nyckelantaganden i Den Ny-Keynsianska modellen?
- Agents are rational and optimize their behaviour.
- The economy is closed and there is no capital.
- Technology exhibits constant returns to scale, Yt = Lt.
- The goods market is characterized by monopolistic competition.
- There are nominal rigidities (price frictions).
Givet lukaskurvan är det bara överaskningar i prisutvecklingen som har någon real effekt på output. Vad betyder det?
The fact that only surprise changes in prices has an affect on output is consistent with the widely held belief that there is no ”money illusion” in the long run, i.e. nominal values do not affect real values in the long run and there is no permanent trade-off between e.g. inflation and unemploy-
ment as the original Phillips curve was first interpreted as suggesting.
Vad är skillnaden mellan commitment och discression?
Vid kommitment sätter Centralbanken ett trovärdigt inflationsmål som dde håller och skapar på så vis inflationsförväntningarna.
Under discretion, expectations about inflation is outside the central bank’s control and are determined prior to the decision of the central bank. However, because the public has rational expec- tations and are perfectly informed about the central bank’s problem, inflation expectations will nonetheless coincide with the actual inflation rate the central bank chooses.
Varför är förlusten större vid discretion än vid commitment?
What is the intuition behind this result? Under commitment, the central bank knows a priori that output will be equal to the natural rate of output since expectations will adjust to whatever target they commit to. Under discretion, on the other hand, expectations are formed prior to the choice of the optimal monetary policy. This opens up the possibility for the central bank to increase output above its natural rate by raising inflation. Because yn < y∗, the central bank has an incentive to do this as long as the marginal benefit of higher output exceeds the marginal cost of higher inflation. However, since the public is rational and fully informed of the central bank’s problem, they will anticipate this incentive and adjust their expectations accordingly. The optimal trade off between higher inflation and higher output is at exactly π = πe > π∗ resulting in output being equal to its natural rate and inflation being above its natural rate.
Vad säger The Taxation Euler equation?
The government is indifferent between financing an extra unit of government consumption Gt by either increasing taxes by one unit in t or by increasing taxes by 1 + r units t + 1. Since government consumption is discounted at the same rate as the value of the debt increases, and the marginal distortion cost is increasing in T , it will never be optimal to deviate from a constant tax rate. E.g. if τt < τt+1, then total costs could be reduced by lowering the taxation rate by a small amount in t + 1 and increasing it in t, without violating the intertemporal budget constraint.
