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What We Don't Know About the Monetary Transmission Mechanism and Why We Don't Know It

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  • Beyer, Andreas
  • Farmer, Roger E A

Abstract

We study identification in a class of linear rational expectations models. For any given exactly identified model, we provide an algorithm that generates a class of equivalent models that have the same reduced form. We use our algorithm to show that a model proposed by Benhabib and Farmer [1] is observationally equivalent to the standard new-Keynesian model when observed over a single policy regime. However, the two models have different implications for the design of an optimal policy rule.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4811.

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Date of creation: Dec 2004
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Handle: RePEc:cpr:ceprdp:4811

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Keywords: Benhabib-Farmer model; Identification; indeterminacy; new-Keynesian model;

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Cited by:
  1. Lucia Alessi & Matteo Barigozzi & Marco Capasso, 2008. "A review of nonfundamentalness and identification in structural VAR models," Working Paper Series 922, European Central Bank.
  2. Andreas Beyer & Roger E. A. Farmer, 2006. "A method to generate structural impulse-responses for measuring the effects of shocks in structural macro models," Working Paper Series 586, European Central Bank.

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