The Macroeconomics Thematic Reading Group (TRG) session was held Friday, November 2, 2018 on the ASE campus. The presenter, Samson M’boueke, a pre-doctoral fellow at ASE, discussed the New Keynesian (NK) Model from Jordi Galí’s 2008 book “Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework”.
Samson began his presentation by noting that New Keynesian models are among the most widely used contemporary macroeconomic models for analyzing monetary and fiscal policies. Among other things, he explained the underlying concepts and assumptions of the model –including the assumptions of monopolistic competition among firms, short-run price stickiness, and non-neutrality of money– before solving the Dynamic Stochastic General Equilibrium Model. He also discussed how the model can be used to simulate the effects of shocks (monetary policy shocks and technology shocks) on real macroeconomic variables.
At the end of his presentation, Samson received a couple of questions from participants, including a question on how to derive the ad-hoc demand-for-money equation that is sometimes included as an additional optimality condition. Samson answered this question by explaining that the said equation could be obtained by introducing real balances into the household utility function, –under the assumption that holding money balances yields utility–, and deriving the optimality condition of the household utility maximization problem.