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The house that Keynes built: Redecorating and overhaul of the monetary policy model

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  • S. R. Moiseev

Abstract

The regular economic crisis prompts macroeconomists to revise their models. The monetary policy is no exception. As a result of the “Great Recession” in 2007-2009 and the COVID-­19 pandemic in 2020-2021, they were forced to refresh a look at the monetary policy models that define central bank’s short­term interest rate decisions. The principles of the New Keynesian economics lie behind most modern models of monetary policy. A set of equations based on several theoretical assumptions and simplifications leads to certain model conclusions. An active work to review the New Keynesian models in the 2020s is under way. Key improvements include financial sector modeling; replacing rational expectations with their alternatives, as well as representative economic agents with heterogeneous ones; finding microeconomic foundations for assumptions; and fiscal policy modeling.

Suggested Citation

  • S. R. Moiseev, 2023. "The house that Keynes built: Redecorating and overhaul of the monetary policy model," Voprosy Ekonomiki, NP Voprosy Ekonomiki, issue 7.
    • Handle: RePEc:nos:voprec:y:2023:id:4351
    DOI: 10.32609/0042-8736-2023-7-35-49
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