New Keynesian Macroeconomics Model for Indonesia

In the recent years many academic interested in New Keynesian Small Macroeconomic model that is developed in the mid of 90's as a response from Lucas Critique on macroeconomic Keynesian (IS-LM) in early 80's. Repairs carried out on Keynesian model with a base to build models based on micro foundation (house hold and firm optimization) and incorporate aspects of rational expectation.

In the beginning New Keynesian Small Macroeconomic model was built for a closed economy model for the small country (in the sense that the influence of a small country of the world economy). Then around the beginning of the year 2000’s model developed for the open economy. Main core (standard model) this New Keynesian Small Macroeconomic model is the three equation such as; the aggregate demand equation (which was formed from the optimization intertemporal consumption of house hold); the aggregate supply (which was formed Maximization of discounted future profit company); and the rule of Monetary (Taylor rule).

At this time the researchers continue to develop based on the standard model with a special specifications are: the aggregate supply; add capital factors; add a factor in oil prices. Similarly, many models have been used by the Central Bank in some countries and used by the IMF as forecasting and policy analysis system Model (FPAS) to evaluate the macroeconomic state of the member-countries.

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