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Monetary Policy Analysis in Backward-Looking Models

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  • Jesper LINDE

Abstract

In this paper, I use a dynamic general equilibrium model to quantify how sensitive a typical backward-looking model used in monetary policy analysis is to the Lucas critique. The results show that the backward-looking model exhibit significant parameter instability that is economically important, but that a standard econometric test for detecting this instability fails to do so accurately in small samples. These findings suggest that the relative merits of alternative monetary policy rules should be checked in an equilibrium framework.

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Bibliographic Info

Article provided by ENSAE in its journal Annals of Economics and Statistics.

Volume (Year): (2002)
Issue (Month): 67-68 ()
Pages: 155-182

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Handle: RePEc:adr:anecst:y:2002:i:67-68:p:07

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