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International Evidence on the Stability of the Optimizing IS Equation

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  • Amit Kara
  • Edward Nelson

Abstract

We provide international evidence on the issue of whether the optimizing IS equation is more stable than a backward-looking alternative. This evidence consists of estimates of IS equations on quarterly data for the UK and Australia, both for the full sample of the last 40 years and for the period following major monetary policy shifts in 1979-80. Results suggest the parameters in the optimizing IS equations are more empirically stable than those of the backward-looking alternative. The use of dynamic general equilibrium modelling in empirical work does deliver material benefits, in the form of equations more suitable for policy analysis. Copyright 2004 Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics & Statistics.

Volume (Year): 66 (2004)
Issue (Month): s1 (09)
Pages: 687-712

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Handle: RePEc:bla:obuest:v:66:y:2004:i:s1:p:687-712

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Cited by:
  1. Paul Turner, 2007. "Some UK evidence on the Forward Looking IS Equation:," Discussion Paper Series 2007_16, Department of Economics, Loughborough University, revised May 2007.
  2. Juselius, Mikael, 2008. "Testing the New Keynesian Model on U.S. and Euro Area Data," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 2(24), pages 1-26.
  3. Männistö , Hanna-Leena, 2005. "Forecasting with a forward-looking DGE model: combining long-run views of financial markets with macro forecasting," Research Discussion Papers 21/2005, Bank of Finland.
  4. Edward Nelson, 2004. "Monetary policy neglect and the Great Inflation in Canada, Australia, and New Zealand," Working Papers 2004-008, Federal Reserve Bank of St. Louis.
  5. Christopher Martin & Costas Milas, 2006. "The Impact of Uncertainty on Monetary Policy Rules in the UK," Keele Economics Research Papers KERP 2006/09, Centre for Economic Research, Keele University.

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