Working Paper: CEPR ID: DP4588
Authors: Wendy Carlin; David Soskice
Abstract: We develop a graphical 3-equation New Keynesian model for macroeconomic analysis to replace the traditional IS-LM-AS model. The new graphical IS-PC-MR model is a simple version of the one commonly used in central banks and captures the forward-looking thinking engaged in by the policy-maker. We show how it can be modified to include a forward-looking IS curve and how it relates to current debates in monetary macroeconomics, including the New Keynesian Phillips Curve and the Sticky Information Phillips Curve models.
Keywords: monetary policy rules; new keynesian macroeconomics; new keynesian phillips curve; sticky information phillips curve; taylor rules
JEL Codes: A22; A23; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Changes in monetary policy (E52) | Output (Y10) |
| Changes in monetary policy (E52) | Inflation (E31) |
| Forward-looking IS curve (E43) | Current economic outcomes (E66) |
| Central bank's interest rate decisions (E52) | Deviations in inflation from target (E31) |
| Central bank's interest rate decisions (E52) | Deviations in output from equilibrium (D59) |
| Central bank's optimization behavior (E52) | Inflation persistence (E31) |
| Central bank's optimization behavior (E52) | Output fluctuations (E39) |