Basic Post-Keynesian Macroeconomic Models and its comparison with the

Romer-Taylor model.
Domínguez Olalde Erick Jushef
Economic policy 5EM15

Romer-Taylor model.
The New Keynesian macroeconomics is directed to the discussion of monetary policy
with inflation targets. In this context important is to analyze some schemes of inflation
expectations (static and rational) and the term structure of interest rates for the conduct
of monetary policy. Only then the reasons behind the behavior of the central bank
become intelligible when disturbances in demand and aggregate supply take place.
The economy NCM model, followed by its policy implications. It is worth noting at the
outset that the NCM is a framework in which there is no role for “money and banking,”
and there is only a single rate of interest. Two of the key assumptions made are worth
emphasizing: the first is that price stability is the primary objective of monetary policy;
the second is that inflation is a monetary phenomenon and, as such, it can only be
controlled by monetary policy means, this being the rate of interest under the control
of the central bank. This should be undertaken through interest rate manipulation.

An important assumption that permits monetary policy to have the effect that it is
assigned by the NCM is the existence of temporary nominal rigidities in the form of sticky
wages, prices, and information, or some combination of these frictions, so that the
central bank, by manipulating the nominal rate of interest, is able to influence real
interest rates and, hence, real spending in the short run. A further important aspect of
IT is the role of “expected inflation” embedded in equation. The inflation target itself
and the forecasts of the central bank are thought of as providing a strong steer to the
perception of expected inflation. Given the lags in the transmission mechanism of the
rate of interest to inflation, and the imperfect control of inflation, inflation forecasts
become the intermediate target of monetary policy in this framework, where the
ultimate target is the actual inflation rate.
Basic Post-Keynesian Macroeconomic Models.
The accelerator effect refers in macroeconomics to the positive effect that the growth
of the economy has on gross capital formation or private fixed investment. An increase
in GDP implies that businesses in general see their profits, sales and cash flow increase,
and the use of installed capacity increases. This usually implies that earnings
expectations and investor confidence increase, which motivates companies to build
more factories and install more machinery, that is, more fixed investment. This may lead
to further growth of the economy through stimulation of consumer income and
expenditure, for example via the multiplier effect.
The acceleration effect has a greater impact when the economy is moving away from its
full employment level or when it is already below this production level. This is so because
the high levels of aggregate demand collide with the limits imposed by the levels of the
labor force, the existing stock of capital goods, the availability of natural resources and
the technological ability to convert these inputs into goods. It should be noted that this
principle, like many others in economics, only works ceteris paribus or "with everything
else constant.". This means that the acceleration effect can be canceled by other
economic forces.
The negotiated wage rate also has an influence on the composition of output and
exports. A high wage rate obliges firms to manufacture high-tech complex goods; and
eases a highly trained labour force, as people can absorb the associated costs. This
means that top management must be very efficient and dedicated to its job. Income
distribution will be flatter and more balanced between labour and capital.
On the other hand, a low wage allows for the manufacturing of low-tech simple
products, and the use of a poorly trained labour force. It also allows for a more
comfortable life for top management. Inomce distribution will be highly concentrated
and clearly unbalanced between labour and capital, as it will be heavily inclined in favour
of capital.