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The BMW model as a static approximation of a foreward-looking New Keynesian macroeconomic model

Author

Listed:
  • Bofinger, Peter
  • Mayer, Eric
  • Wollmershäuser, Timo

Abstract

Over the last decade a new consensus model has emerged in monetary macroeconomics, labelled New Keynesian macroeconomics (Clarida et al., 1999). It consists of three simple building blocs: a forward-looking IS-equation that is derived from the optimization problem of a representative household, a forward-looking Phillips curve that maps the optimal pricing decisions of monopolistically competitive firms facing restrictions on their ability to adjust wages or prices in a flexible manner, and a relationship that describes how monetary policy is conducted. In Bofinger, Mayer and Wollmershäuser (2002a, 2002b) we developed the BMW model which takes this standard dynamic macro model to an intermediate audience in a down-to-earth fashion. This paper presents the linkages between our static BMW approach and a dynamic New Keynesian macro model.

Suggested Citation

  • Bofinger, Peter & Mayer, Eric & Wollmershäuser, Timo, 2003. "The BMW model as a static approximation of a foreward-looking New Keynesian macroeconomic model," W.E.P. - Würzburg Economic Papers 42, University of Würzburg, Department of Economics.
    • Handle: RePEc:zbw:wuewep:42
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    More about this item

    Keywords

    BMW model; New Keynesian macroeconomic model; optimal monetary policy;
    All these keywords.

    JEL classification:

    • A20 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - General
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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