EasyEcon

Sticky-price business-cycle dynamics

Basic New Keynesian DSGE Model

A Gali-style three-equation DSGE notebook combining the dynamic IS curve, New Keynesian Phillips curve, and a Taylor rule to study inflation-output stabilisation under nominal rigidities.

Macroeconomics Business cycle Advanced EasyEcon / Marimo Growth, business cycles, and open economy
Focus

Taylor-rule stabilisation, sticky prices, and policy trade-offs

Adjust Phillips-curve slope, intertemporal demand sensitivity, policy-rule coefficients, and shock persistence to see how inflation, the output gap, and interest rates respond.

What to explore

Change parameters and watch the model adjust.

  • Shock type, Phillips-curve slope, intertemporal demand sensitivity, and Taylor-rule coefficients
  • Shock persistence, shock size, and horizon for deterministic impulse responses

Core ideas

Interpret the mechanics before you chase the graphs.

  • Nominal rigidities break the short-run flexible-price neutrality of the RBC benchmark.
  • Demand shocks move inflation and the output gap together, while cost-push shocks create a stabilisation trade-off.
  • Expected future policy matters because current spending and pricing are forward looking in the New Keynesian system.

Learning goals

What this model should help students internalize.

  • Link the NKIS curve, New Keynesian Phillips curve, and Taylor rule into one coherent sticky-price benchmark.
  • Compare how demand and cost-push shocks change the joint behaviour of inflation, the output gap, and the policy rate.
  • Interpret how stronger monetary-policy feedback changes stabilisation outcomes and trade-offs.

Prerequisites

Concepts to review before diving in.

  • Stochastic RBC intuition and the flexible-price benchmark
  • Euler-equation reasoning and basic monetary-policy familiarity

EasyEcon interactive

Basic NK DSGE notebook

EasyEcon / Marimo

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Taylor-rule stabilisation, sticky prices, and policy trade-offs

Adjust Phillips-curve slope, intertemporal demand sensitivity, policy-rule coefficients, and shock persistence to see how inflation, the output gap, and interest rates respond.

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