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On global determinacy of New Keynesian models

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  • Kim, Minseong

Abstract

New Keynesian models assume that inflation rate and output level are endogenous variables. However, given that firms are price setters and suppliers in the models, it is more reasonable to assume that, absent equilibrium coordination (or tatonnement) issues usually abstracted away, both variables actually are state variables determined by expectations in the past. This secures global equilibrium determinacy and a previously unavailable account of inflation rate for New Keynesian models. Furthermore, the principle of effective demand is implemented via the expectation channel.

Suggested Citation

  • Kim, Minseong, 2021. "On global determinacy of New Keynesian models," OSF Preprints ygd9x, Center for Open Science.
    • Handle: RePEc:osf:osfxxx:ygd9x
    DOI: 10.31219/osf.io/ygd9x
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    References listed on IDEAS

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    5. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    6. Cochrane, John H., 2017. "The new-Keynesian liquidity trap," Journal of Monetary Economics, Elsevier, vol. 92(C), pages 47-63.
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