Department of Economics and Business Economics

The Extended Perturbation Method: New Insights on the New Keynesian Model

Research output: Working paperResearch

Standard

The Extended Perturbation Method: New Insights on the New Keynesian Model. / Andreasen, Martin Møller; Kronborg, Anders Farver.

Aarhus : Institut for Økonomi, Aarhus Universitet, 2017.

Research output: Working paperResearch

Harvard

Andreasen, MM & Kronborg, AF 2017 'The Extended Perturbation Method: New Insights on the New Keynesian Model' Institut for Økonomi, Aarhus Universitet, Aarhus.

APA

Andreasen, M. M., & Kronborg, A. F. (2017). The Extended Perturbation Method: New Insights on the New Keynesian Model. Aarhus: Institut for Økonomi, Aarhus Universitet. CREATES Research Papers, No. 2017-14

CBE

Andreasen MM, Kronborg AF. 2017. The Extended Perturbation Method: New Insights on the New Keynesian Model. Aarhus: Institut for Økonomi, Aarhus Universitet.

MLA

Andreasen, Martin Møller and Anders Farver Kronborg The Extended Perturbation Method: New Insights on the New Keynesian Model. Aarhus: Institut for Økonomi, Aarhus Universitet. (CREATES Research Papers; Journal number 2017-14). 2017., 43 p.

Vancouver

Andreasen MM, Kronborg AF. The Extended Perturbation Method: New Insights on the New Keynesian Model. Aarhus: Institut for Økonomi, Aarhus Universitet. 2017 Mar 27.

Author

Andreasen, Martin Møller ; Kronborg, Anders Farver. / The Extended Perturbation Method: New Insights on the New Keynesian Model. Aarhus : Institut for Økonomi, Aarhus Universitet, 2017. (CREATES Research Papers; No. 2017-14).

Bibtex

@techreport{42da40ff577144869da4ce23510f8cef,
title = "The Extended Perturbation Method: New Insights on the New Keynesian Model",
abstract = "This paper introduces the extended perturbation method, which improves upon standard perturbation by removing approximation errors under perfect foresight. For the New Keynesian model, we show that standard perturbation generates explosive sample paths because it does not account for the upper bound on inflation as implied by Calvo pricing. In contrast, extended perturbation generates stable dynamics as it enforces this bound. Extended perturbation also adds to existing evidence on downward nominal wage rigidities in the New Keynesian model, as we only find support for this friction when using standard perturbation but not when using the more accurate extended perturbation approximation.",
keywords = "Asymmetric wages; Extended Path; Perturbation method; Stable approximations",
author = "Andreasen, {Martin M{\o}ller} and Kronborg, {Anders Farver}",
year = "2017",
month = "3",
day = "27",
language = "English",
series = "CREATES Research Papers",
publisher = "Institut for {\O}konomi, Aarhus Universitet",
number = "2017-14",
type = "WorkingPaper",
institution = "Institut for {\O}konomi, Aarhus Universitet",

}

RIS

TY - UNPB

T1 - The Extended Perturbation Method: New Insights on the New Keynesian Model

AU - Andreasen, Martin Møller

AU - Kronborg, Anders Farver

PY - 2017/3/27

Y1 - 2017/3/27

N2 - This paper introduces the extended perturbation method, which improves upon standard perturbation by removing approximation errors under perfect foresight. For the New Keynesian model, we show that standard perturbation generates explosive sample paths because it does not account for the upper bound on inflation as implied by Calvo pricing. In contrast, extended perturbation generates stable dynamics as it enforces this bound. Extended perturbation also adds to existing evidence on downward nominal wage rigidities in the New Keynesian model, as we only find support for this friction when using standard perturbation but not when using the more accurate extended perturbation approximation.

AB - This paper introduces the extended perturbation method, which improves upon standard perturbation by removing approximation errors under perfect foresight. For the New Keynesian model, we show that standard perturbation generates explosive sample paths because it does not account for the upper bound on inflation as implied by Calvo pricing. In contrast, extended perturbation generates stable dynamics as it enforces this bound. Extended perturbation also adds to existing evidence on downward nominal wage rigidities in the New Keynesian model, as we only find support for this friction when using standard perturbation but not when using the more accurate extended perturbation approximation.

KW - Asymmetric wages; Extended Path; Perturbation method; Stable approximations

M3 - Working paper

T3 - CREATES Research Papers

BT - The Extended Perturbation Method: New Insights on the New Keynesian Model

PB - Institut for Økonomi, Aarhus Universitet

CY - Aarhus

ER -