Aug 18Liked by Brian Romanchuk

Mountain Goat came to the following conclusion

"However, Sims states that Taylor’s original intuition is not how the Taylor rule works in the standard NK model. Instead, the central bank uses the Taylor principle to rule out indeterminacy by creating explosive inflation dynamics. If inflation gets above target the central bank increases inflation further, ensuring that the inflation rate eventually goes to infinity. Somehow solutions with infinite inflation in inflation are ruled out, and so by destabilising the economy the central bank ensures inflation will stay on target."

The article is worth your time if you haven't read it already: https://themountaingoateconomics.com/2023/07/24/new-keynesian-macroeconomic-models-are-worse-than-you-think/

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