NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

New-Keynesian Economics: An AS-AD View

Pierpaolo Benigno

NBER Working Paper No. 14824
Issued in March 2009
NBER Program(s):   EFG   IFM   ME

A simple New-Keynesian model is set out with AS-AD graphical analysis. The model is consistent with modern central banking, which targets shortterm nominal interest rates instead of money supply aggregates. This simple framework enables us to analyze the economic impact of productivity or markup disturbances and to study alternative monetary and fiscal policies.

The framework is also suitable for studying a liquidity-trap environment, the economics of debt deleveraging, and possible solutions.

The impact of the fiscal multipliers on output and the output gap can be quantified. During normal times, a short-run increase in public spending has a multiplier less than one on output and a much smaller multiplier on the output gap, while a decrease in short-run taxes has a positive multiplier on output, but negative on the output gap. When the economy is depressed because some agents are deleveraging, fiscal policy is more powerful and the multiplier can be quite big.

In the AS-AD graphical view, optimal policy simplifies to nothing more than an additional line, IT, along which the trade-off between the objective of price stability and that of stabilizing the output gap can be optimally exploited.

download in pdf format
   (646 K)

email paper

This paper is available as PDF (646 K) or via email.

This paper was revised on May 3, 2013

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w14824

Users who downloaded this paper also downloaded these:
Clarida, Gali, and Gertler w7147 The Science of Monetary Policy: A New Keynesian Perspective
Greenwald and Stiglitz w2160 Keynesian, New Keynesian, and New Classical Economics
Cogan, Cwik, Taylor, and Wieland w14782 New Keynesian versus Old Keynesian Government Spending Multipliers
Benigno and Ricci w15762 The Inflation-Output Trade-off with Downward Wage Rigidities
Mankiw w3885 The Reincarnation of Keynesian Economics
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us