Garcia Schmidt too Woodford on neo-Fisherian economcs

Mariana Garcia Schmidt together with Mike Woodford are lighting upward the network alongside a pNoah Smith , Marginal Revolution , econbrowser.

This is a peculiarly of import vocalism , every bit it seemed to me that measure New-Keynesian models hit the new-Fisherian result. i = r + Epi is a steady acre inwards all models. In old-Keynesian models , it was an unstable steady acre , hence an involvement charge per unit of measurement peg leads to explosive inflation or deflation. But inwards new-Keynesian models , an involvement charge per unit of measurement peg is the stable/indeterminate case. There are also many equilibria , but if you lot enhance involvement rates , inflation ever ends upward ascension to see the higher involvement rate.

What I tin glean from the slides is that Garcia Schmidt together with Woodford agree: Yes , this is what happens inwards rational expectations or perfect foresight versions of the new-Keynesian model. But if you lot add together learning mechanisms , it goes away.

My kickoff reaction is relief -- if Woodford says it is a prediction of the measure perfect foresight / rational expectations version , that agency I didn't screw upward somewhere. And if ane has to resort to learning together with non-rational expectations to acquire rid of a number , the battle is one-half won.

But that's alone preliminary relief. Schmidt together with Woodford hope a newspaper shortly , which volition undoubtedly live good crafted together with challenging.

For to a greater extent than on the number , hither is a a previous weblog post. Section 3.1 ff of "Monetary policy alongside involvement on reserves" has a sum novel Keynesian model alongside the Fisherian result. And a wry prediction: the Fed volition enhance rates to caput off inflation , that volition drive the inflation , together with hence the Fed volition congratulate itself on having headed off the inflation.  I also suspect that models alongside restricted liquidity (no involvement on reserves) hit hand a temporary reject inwards inflation , but without that liquidity nosotros at ane time volition acquire sum Fisherian results. But that's merely a conjecture hence far.  My last foray into learning inwards new-Keynesian models , which didn't halt well.

Why postal service now? Garcia Schmidt together with Woodford clearly volition accept a thoughtful together with sophisticated newspaper , on what I retrieve is a deep together with of import point. I hope to encourage others to read together with aid to digest the paper.