DP4588 The 3-Equation New Keynesian Model: A Graphical Exposition

Author(s): Wendy Carlin, David Soskice
Publication Date: September 2004
Keyword(s): A22 A23, monetary policy rules, New Keynesian macroeconomics, New Keynesian Phillips curve, sticky information Phillips curve, Taylor rules
JEL(s): E52
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4588

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.