This is a web applet is an adaptation of John Cochrane's Blog, "Is the Fed New Keynesian".
Interest Rates, Inflation & Unemployment
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Technical details:
- The model is a simplified version of the New Keynesian model with a static IS Curve and an expectations-augmented Phillips Curve, as outlined by Cochrane.
- The anchored inflation expectations model fixes expected inflation at 2%.
- The unanchored expectations model sets expected inflation to current inflation.
- The neutral rate is set to 1%, the slope of the IS and Phillips curves are 0.5, and unemployment is linked to the output gap through Okun's Law as in Cochrane.