Josh Hendrickson is sort of like my mirror image; he doesn’t post very often, but almost invariably has something interesting to say. In a new post he discusses a flaw in one common New Keynesian (NK) model, which looks at monetary policy through the lens of interest rates. But first, a quick review of interest rates and monetary policy. The easiest way to see the relationship is with the equation of exchange:
M*V = P*Y