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

Publication Date

23/09/2004

JEL Code(s)

Keyword(s)

Programme Area(s)

Network(s)

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.