What does the new keynesian model imply on this issue

Reference no: EM13897683

"Because monetary shocks have a delayed and gradual impact on in?ation, in essence we experience a credible announced disin?ation every time we get a contractionary shock. Yet we don't get the boom that the (new Keynesian) model says should accompany it. This means that something is fundamentally wrong with this model."

Discuss the validity of the preceding observation. In particular, is this observation valid for contractions in monetary policy that were unanticipated when the policy was ?rst announced? What does the new Keynesian model imply on this issue? If it is fundamentally wrong, how might the new Keynesian model be modi?ed to ?t the facts?

Reference no: EM13897683

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