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Macroeconometric equivalence, microeconomic dissonance, and the design of monetary policy

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Author Info
Levin, Andrew T.
David López-Salido, J.
Nelson, Edward
Yun, Tack

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Abstract

Macroeconometric equivalence means that estimates of DSGE models using first-order approximations to equilibrium conditions fail to distinguish between alternative preference/technology configurations. Microeconomic dissonance means that the underlying microeconomic differences between ostensibly equivalent models become important when optimal monetary policy is derived. The relevance of these concepts is established by analysis of optimal monetary policy using a small-scale New Keynesian model. Microeconomic and financial datasets are promising tools with which to overcome the equivalence/dissonance problem.

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File URL: http://www.sciencedirect.com/science/article/B6VBW-4T708DF-1/2/1256e730428ebe858a776c006b11c7df
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Publisher Info
Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 55 (2008)
Issue (Month): Supplement 1 (October)
Pages: S48-S62
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Handle: RePEc:eee:moneco:v:55:y:2008:i:s1:p:s48-s62

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Web page: http://www.elsevier.com/locate/inca/505566

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Keywords: Macroeconometric equivalence Alternative microfoundations Ramsey optimal monetary policy Welfare analysis;

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References listed on IDEAS
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Andrew T. Levin, 2008. "Commentary on "Optimal monetary policy under uncertainty: a Markov jump-linear-quadratic approach"," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 301-306. [Downloadable!]
  2. Richard Dennis, 2008. "Timeless perspective policymaking: When is discretion superior?," Working Paper Series 2008-21, Federal Reserve Bank of San Francisco. [Downloadable!]
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