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Optimal monetary policy and the equivalency between the one-period AD-AS model and the forward-looking New Keynesian model

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  • Stefan Krause

Abstract

It is shown how a one-period aggregate demand-aggregate supply (AD-AS) model yields equivalent expressions for inflation and output under optimal monetary policy as a forward-looking New Keynesian model. Furthermore the advantage that the AD-AS model has over the New Keynesian specification when evaluating policy efficiency is evaluated.

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File URL: http://www.informaworld.com/openurl?genre=article&doi=10.1080/13504850600691093&magic=repec&7C&7C8674ECAB8BB840C6AD35DC6213A474B5
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 13 (2006)
Issue (Month): 9 ()
Pages: 541-544

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Handle: RePEc:taf:apeclt:v:13:y:2006:i:9:p:541-544

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References

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  1. Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," NBER Working Papers 7147, National Bureau of Economic Research, Inc.
  2. Stefan Krause, 2003. "Why Should Policy Makers Care About Inflation and Output Variability? The Role of Monetary Policy Stabilization under Asymmetric Information," Emory Economics 0313, Department of Economics, Emory University (Atlanta).
  3. Stephen G. Cecchetti, 1998. "Policy rules and targets: framing the central banker's problem," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 1-14.
  4. Barry Eichengreen, 2002. "Still Fettered After All These Years," NBER Working Papers 9276, National Bureau of Economic Research, Inc.
  5. Stephen G. Cecchetti & Stefan Krause, 2001. "Financial Structure, Macroeconomic Stability and Monetary Policy," NBER Working Papers 8354, National Bureau of Economic Research, Inc.
  6. Roberts, John M, 1995. "New Keynesian Economics and the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 975-84, November.
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Cited by:
  1. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers 2139, C.E.P.R. Discussion Papers.
  2. Stefan Krause & Fabio Méndez, 2005. "Policy Makers' Preferences, Party Ideology, and the Political Business Cycle," Southern Economic Journal, Southern Economic Association, vol. 71(4), pages 752-767, April.
  3. Stefan Krause & Fabio Mendez, 2006. "Does Opportunism Pay Off? A Study of Vote Functions and Policy Preferences," Emory Economics 0604, Department of Economics, Emory University (Atlanta).
  4. Stefan Krause & Fabio Mendez, 2005. "Institutions, Arrangements, and Preferences for Inflation Stability: Evidence and Lessons from a Panel Data Analysis," Emory Economics 0501, Department of Economics, Emory University (Atlanta).

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