I ran across this, which appears to be a conference presentation by Kocherlakota. He's not quite in central banker mode here (though there is a bit of that in the paper). It seems he's still doing research, and wants to tell us about it.
A paper that Narayana gives high praise to is this one, by Roger Farmer (UCLA). Roger is another person who does not have much time for research these days, as he is currently chairing UCLA's economics department. Roger once told me about the paper, but I have never read it, so thought I would take a look. Roger calls this an "Old Keynesian" model, which I think is accurate. There are no sticky prices and wages in sight, and this is in the spirit of models with indeterminacies, going back to John Bryant, Peter Diamond, and, as some people would have it, Keynes himself. Roger, Jess Benhabib, Mike Woodford, Russ Cooper, and others developed dynamic, quantitative versions of models with indeterminacies, but the Keynesian models that Woodford ultimately marketed to the profession and central bankers were not those ones. New Keynesian models have uniqueness, and are more in the neoclassical growth model tradition - essentially RBC models with monopolistic competition and sticky prices.
So what is going on in Roger's model? At first you think he might just be re-doing Peter Diamond. There is search and matching in the labor market, but he does not appear to be generating indeterminacies through increasing returns in the matching function, as Diamond does. Further, it seems that if firms and workers bargain over wages in the the usual Diamond-Mortensen-Pissarides Nash bargaining fashion, that we get determinacy. Further, it's apparently not sunspot indeterminacy either, as in the Farmer/Benhabib/Woodford type models. There seems to be something exogenous in there, which Roger interprets as beliefs or animal spirits, which is driving asset prices. The asset prices are apparently determined in the usual forward-looking manner, but I wasn't sure whether these beliefs were ultimately self-fulfilling or not.
In any event, apparently beliefs drive the equilibrium outcome, and we could be stuck in a high unemployment state with low asset prices. Ultimately, though, I'm not sure I understood everything correctly. Maybe someone can help me out. Further, Roger seems to want to connect his model to current events, but he might have trouble explaining why the stock market is doing well, real GDP growth is sort of OK, and the labor market is still in the toilet.
Anwyay, back to Narayana's model, which is here. The ideas seem to be coupled to his discussion of a Kiyotaki-Moore paper at this conference (see Narayana's slides, which are linked in the program). In that discussion, Narayana discusses bubbles, which in his context are essentially the types of equilibria that we are accustomed to studying in monetary models. Fiat money can have value in equilibrium, in spite of the fact that its fundamental value is zero - there is a money bubble. However, there is always an equilibrium where the bubble bursts: money will have zero value if everyone expects it to.
Narayana couples the bubble idea to a Diamond/Mortensen/Pissarides search environment, and then uses Farmer's idea to get the indeterminacy. Then he tries to get the central bank to move the real interest rate around to select among the equilibria and get us out of the low unemployment state. Two problems here: (i) We want a more serious treatment of central banking. It may be the case that monetary policy can move the real rate, but we want to know why. That's critical. (ii) Narayana (and Farmer too) slip into "aggregate demand" language. If we go back through the history of thought, we find Woodford and Peter Diamond doing it too. Why is this a mistake? "Aggregate demand" and "aggregate supply" is a language associated with a particular class of textbook macroeconomic models that were expanded and fit to data in the 1960s and 1970s in the form of large macroeconometric models like the FRB/MIT/Penn model. In the 1970s, Lucas and others convinced us (though maybe some people were not listening) that those models were not structurally invariant - we should not be using those models to think about policy interventions. The Lucas Critique had its roots in the work of the Cowles Commission (Marschak in particular I think), and it is important. Using the aggregate demand language is (i) not formally correct, either for Farmer, Kocherlakota, Woodford, or Peter Diamond and (ii) It causes backsliding. It was hard enough to convince people in the first instance that the Lucas Critique matters. Now we have to do it all over again. People will do plenty of sloppy economics without any encouragement. We don't want to hand out licenses to do sloppy economics.