Vol. 18 No. 38 (2023)

Artículos

An illustration of monetary policy in the simple New Keynesian model of rational expectations

Published 2023-01-02

  • Eddy Lizarazu
    • ,
  • Samuel Joseph Lizarazu Cerón

Eddy Lizarazu
Universidad Autónoma Metropolitana, Iztapalapa

Samuel Joseph Lizarazu Cerón


Abstract

The objective of this article is to verify that a commitment monetary policy is superior to a discretionary monetary policy. In the simple New Keynesian model of rational expectations this supremacy is revealed in two ways. First, the rational expectations solution of commitment policy has certain advantages over discretionary policy. Second, numerical simulations of the New Keynesian model with a compromise perspective ensure better results than with a discretionary policy.

Keywords

Impulse-response function, optimal monetary policy, New Keynesian model, rational expectations, Schur decomposition

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