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On the Validity of the Theoretical Bases of Inflation Targeting and New Keynesian General Equilibrium Models

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  • J. PLUSHCHEVSKAYA.

Abstract

The latest world economic and financial crisis highlighted problems in macroeconomic policies pursued by developed economies as well as the necessity of searching for an effective regulatory framework. In particular, doubts have occurred in the indisputability of advantages of inflation targeting and its theoretical basis: the New Keynesian dynamic stochastic general equilibrium models. The reason for doubts lies mainly in the lack of confidence in the new neoclassical synthesis propositions which form the basis for the modern monetary theory and structural modelling. The article reveals close links between contemporary mainstream economics, inflation targeting and New Keynesian dynamic stochastic general equilibrium models, concentrates on controversial points of the theory which bring into question applicability of the monetary policy regime and the models, and finally, outlines further research agenda.

Suggested Citation

  • J. Plushchevskaya., 2012. "On the Validity of the Theoretical Bases of Inflation Targeting and New Keynesian General Equilibrium Models," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 5.
  • Handle: RePEc:nos:voprec:2012-05-3
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    Keywords

    monetary policy; inflation targeting; macroeconomics; New Keynesian dynamic stochastic general equilibrium models; new neoclassical synthesis.;

    JEL classification:

    • A11 - General Economics and Teaching - - General Economics - - - Role of Economics; Role of Economists
    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
    • B40 - Schools of Economic Thought and Methodology - - Economic Methodology - - - General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions

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