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Solving the new Keynesian model in continuous time

Listed author(s):
  • Olaf Posch

    (Aarhus University and CREATES)

  • Juan F. Rubio-Ramírez

    (Duke University, FRB Atlanta, and FEDEA)

  • Jesús Fernández-Villaverde

    (University of Pennsylvania, NBER, CEPR, and FEDEA)

We show how to formulate and solve the new Keynesian model in continuous time. In our economy, monopolistic firms engage in infrequent price setting á la Calvo. We introduce shocks for preferences, total factor productivity and government expenditure, and then show how the equilibrium system can be written in terms of 8 state variables. Our nonlinear and global numerical solution technique uses the collocation method based on Chebychev polynomials directly computing the continuous-time Bellman equation.

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Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 829.

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Date of creation: 2011
Handle: RePEc:red:sed011:829
Contact details of provider: Postal:
Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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