DSGE Models for Monetary Policy ∗

  title={DSGE Models for Monetary Policy ∗},
  author={Lawrence J. Christiano and Mathias Trabandt and Karl Walentin},
We begin with a detailed derivation of the equilibrium conditions of a simple New Keynesian DSGE model, and explore some of its implications for the analysis of monetary policy. We then review the consensus New Keynesian model that is rich enough to address actual data. We show how that model accounts for the slow response of inflation to a monetary policy shock and the strong response of real variables, without appealing to implausible degrees of price and wage frictions. We show that that… CONTINUE READING
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