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The Credibility Problem Revisited: Thirty Years on from Kydland and Prescott

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  • Paul Levine
  • Joseph Pearlman
  • Bo Yang

Abstract

Macroeconomics research has changed profoundly since the Kydland-Prescott seminal paper. In order to address the Lucas Critique, modeling is now based on micro-foundations treating agents as rational utility optimizers. Bayesian estimation has produced models which are more data-consistent than those based simply on calibration. With micro-foundations and new linear-quadratic techniques, normative policy based on welfare analysis is now possible. In the open economy, policy involves a "game" with policymakers and private institutions or private individuals as players. This paper attempts to reassess the Kydland-Prescott contribution in the light of these developments. Copyright � 2008 The Authors. Journal compilation � 2008 Blackwell Publishing Ltd.

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Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 16 (2008)
Issue (Month): 4 (09)
Pages: 728-746

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Handle: RePEc:bla:reviec:v:16:y:2008:i:4:p:728-746

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Cited by:
  1. Paul Middleditch, 2010. "A New Keynesian Model with Heterogeneous Price Setting," Centre for Growth and Business Cycle Research Discussion Paper Series, Economics, The Univeristy of Manchester 150, Economics, The Univeristy of Manchester.
  2. Adolfson, Malin & Laséen, Stefan & Lindé, Jesper & Svensson, Lars E O, 2008. "Monetary Policy Trade-Offs in an Estimated Open-Economy DSGE Model," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7070, C.E.P.R. Discussion Papers.

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