A History of the Three-Equation New Keynesian Model as a Pedagogical Device: Policy, Research, Teaching

Abstract

This article examines how pedagogical concerns shaped the development of the three-equation New Keynesian model, which became the dominant framework for teaching and evaluating monetary policy from the 1990s onward. Contrary to the standard narrative, the model did not originate in classrooms or academic journals but in central bank workshops. We show that the many macroeconomists who proposed small models in the 1990s simultaneously targeted researchers, policymakers, and students, pursuing a common set of epistemic virtues: simplicity, realism, and consistency. They tried to accommodate recent advances in expectations modeling and price-setting modeling, to assess theoretically and empirically worldwide shifts in monetary policymaking, and to equip students with a sense of these mechanisms and dynamics. These virtues were negotiated differently across spheres, particularly in the transition from equation-based policy models to diagrammatic classroom representations, illuminating the porous boundary between education, research, and policymaking in modern macroeconomics.