A Basic Version of the Micro-founded Neo-Keynesian Model

This chapter considers a basic Neo-Keynesian micro-founded model. In particular, for the choices of firms, it distinguishes various forms of production technology: linear, Cobb-Douglas, and CES technologies. After introducing Calvo stickiness and Rotemberg stickiness in price formation, this chapter considers the general equilibrium of the new Keynesian economics (NKE) model with linear production technology and sets out Blanchard-Kahn conditions for stability and uniqueness of solutions and a DYNARE code for the definitive basic model of the NKE.