This paper estimates a standard version of the New Keynesian monetary (NKM) model under alternative specifications of the monetary policy rule using U.S. and Eurozone data. The estimation procedure implemented is a classical method based on the indirect inference principle. An unrestricted VAR is considered as the auxiliary model. On the one hand, the estimation method proposed overcomes some of the shortcomings of using a structural VAR as the auxiliary model in order to identify the impulse response that defines the minimum distance estimator implemented in the literature. On the other hand, by following a classical approach we can further assess the estimation results found in recent papers that follow a maximum-likelihood Bayesian approach. The estimation results show that some structural parameter estimates are quite sensitive to the specification of monetary policy. Moreover, the estimation results in the U.S. show that the fit of the NKM under an optimal monetary plan is much worse than the fit of the NKM model assuming a forward-looking Taylor rule. In contrast to the U.S. case, in the Eurozone the best fit is obtained assuming a backward-looking Taylor rule, but the improvement is rather small with respect to assuming either a forward-looking Taylor rule or an optimal plan.
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Paper provided by University of the Basque Country - Department of Foundations of Economic Analysis II in its series DFAEII Working Papers with number
200513.
Length: Date of creation: 01 Jan 2005 Date of revision:
08 Apr 2008 Publication status: Forthcoming in B.E. Journal of Macroeconomics 6.2 (2006). Handle: RePEc:ehu:dfaeii:200513
Order Information: Postal: Dpto. de Fundamentos del Análisis Económico II, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain Email:
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Find related papers by JEL classification: C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data) E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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References listed on IDEAS 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.:
Gourieroux, C & Monfort, A & Renault, E, 1993.
"Indirect Inference,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 8(S), pages S85-118, Suppl. De.
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Gourieroux, C. & Monfort, A. & Renault, E., 1992.
"Indirect Inference,"
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92.279, Toulouse - GREMAQ.
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