New-Keynesian Inflation Control is Equilibrium Selection

April 19 2025 revision. The standard New-Keynesian model does not embody the usual policy intuition, higher rates lower demand, lower output and employment and then push inflation down via the Phillips cure. In the standard model, : interest rates on their own raise inflation, and the entire force for disinflation is an equilibrium selection jump unrelated to higher interest rates. The standard Taylor rule hides that assumption but it’s there: There are many Taylor rule disturbances that produce the same interest rate, but different inflation. Read the paper>‍ Matlab program>