Wednesday, July 27, 2016

How to step on a rake

How to step on a rake is a little note on how to solve Chris Sims' stepping on a rake paper.

This is mostly of interest if you want to know how to solve continuous time new-Keneysian (sticky price) models. Chris' model is very interesting, combining fiscal theory, an interest rate rule, habits, long term debt, and it produces a temporary decline in inflation after a rise in nominal interest rates.  

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