Monetary policy indeterminacy in the U.S.: results from a classical test
AbstractWe work with a newly developed method to empirically assess whether a specified new-Keynesian business cycle monetary model estimated with U.S. quarterly data is consistent with a unique equilibrium or multiple equilibria under rational expectations. We conduct classical tests to verify if the structural model is correctly specified. Conditional on a positive answer, we formally assess if such model is either consistent with a unique equilibrium or with indeterminacy. Importantly, our full-system approach requires neither the use of prior distributions nor that of nonstandard inference. The case of an indeterminate equilibrium in the pre-1984 sample and of a determinate equilibrium in the post-1984 sample is favored by the data. The long-run coefficients on inflation and the output gap in the monetary policy rule are found to be weakly identified. However, our results are further supported by a proposed identification-robust indicator of indeterminacy
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Bibliographic InfoPaper provided by Department of Statistics, University of Bologna in its series Quaderni di Dipartimento with number 8.
Date of creation: 2011
Date of revision:
GMM; Indeterminatezza; Massima Verosimiglianza; Errata specificazione; modello neo-Keynesiano per il ciclo economico; VAR; Identificazione debole GMM; Indeterminacy; Maximum Likelihood; Misspecification; new-Keynesian business cycle model; VAR; Weak identification.;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-10-15 (All new papers)
- NEP-CBA-2011-10-15 (Central Banking)
- NEP-ECM-2011-10-15 (Econometrics)
- NEP-MAC-2011-10-15 (Macroeconomics)
- NEP-MON-2011-10-15 (Monetary Economics)
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- Fanelli, Luca, 2012.
"Determinacy, indeterminacy and dynamic misspecification in linear rational expectations models,"
Journal of Econometrics,
Elsevier, vol. 170(1), pages 153-163.
- Luca Fanelli, 2010. "Determinacy, indeterminacy and dynamic misspecification in linear rational expectations models," Quaderni di Dipartimento 4, Department of Statistics, University of Bologna.
- Gunnar Bårdsen & Luca Fanelli, 2013. "Frequentist evaluation of small DSGE models," Working Paper Series 14113, Department of Economics, Norwegian University of Science and Technology.
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