Abstract
The New Neoclassical Synthesis (NNS) epitomized by Michael Woodford's Interest and Prices (2003) is based on a system of three equations that determines the short-run dynamics of output, inflation and interest-rates. Using a feedback-rule of the interest rate to change in inflation and output gaps, Woodford is able to show that the model converges to the equilibrium. But the mathematical procedure he uses to achieve this important result is formally allowable but logically not correct. This paper presents a brief critique of the Woodford’s strategy and shows that applying the ”classical criteria” for the determinacy of an equilibrium do not alter the main conclusion of Woodford’s framework.
Published Version
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