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  5. Macroeconomic Modeling for Monetary Policy Evaluation

Journal of Economic Perspectives

ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)

Macroeconomic Modeling for Monetary Policy Evaluation

  • Jordi Galí
  • Mark Gertler
Journal of Economic Perspectives
vol. 21, no. 4, Fall 2007
(pp. 25–46)
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Abstract

We describe some of the main features of the recent vintage of macroeconomic models used for monetary policy evaluation. We point to some of the key differences with respect to the earlier generation of macro models and highlight the insights for policy that these new frameworks have to offer. Our discussion emphasizes two key aspects of the new models: 1) the significant role of expectations of future policy actions in the monetary transmission mechanism and 2) the importance for the central bank of tracking the flexible price equilibrium values of the natural levels of output and the real interest rate. We argue that both features have important implications for the conduct of monetary policy.

Citation

Galí, Jordi, and Mark Gertler. 2007. "Macroeconomic Modeling for Monetary Policy Evaluation." Journal of Economic Perspectives, 21 (4): 25–46. DOI: 10.1257/jep.21.4.25

Additional Materials

JEL Classification

  • E23 Macroeconomics: Production
  • E31 Price Level; Inflation; Deflation
  • E52 Monetary Policy
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