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International evidence on the stability of the optimizing IS equation

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  • Amit Kara
  • Edward Nelson

Abstract

In this paper we provide international evidence on the issue of whether the optimizing IS equation is more stable than a backward-looking alternative. The international evidence consist of estimates of IS equations on quarterly data for the UK and Australia, both for the full sample of the last 40 years and for the period following major monetary policy shifts in 1979-80. Our results suggest that the parameters in the optimizing IS equations are more empirically stable than those of the backward-looking alternative. The use of dynamic general equilibrium modelling in empirical work does deliver material benefits, in the form of equations that are more suitable for monetary policy analysis.

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2003-020.

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Date of creation: 2004
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Handle: RePEc:fip:fedlwp:2003-020

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Keywords: Monetary policy ; Macroeconomics ; Econometric models;

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References

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Cited by:
  1. Nelson, Edward, 2005. "Monetary Policy Neglect and the Great Inflation in Canada, Australia, and New Zealand," MPRA Paper 822, University Library of Munich, Germany.
  2. Männistö , Hanna-Leena, 2005. "Forecasting with a forward-looking DGE model: combining long-run views of financial markets with macro forecasting," Research Discussion Papers 21/2005, Bank of Finland.
  3. Lai, Ching-chong & Fang, Chung-rou, 2012. "Is the honeymoon effect valid in the presence of both exchange rate and output expectations? A graphical analysis," International Review of Economics & Finance, Elsevier, vol. 21(1), pages 140-146.
  4. Juselius, Mikael, 2008. "Testing the New Keynesian Model on U.S. and Euro Area Data," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 2(24), pages 1-26.
  5. Paul Turner, 2007. "Some UK evidence on the Forward Looking IS Equation:," Discussion Paper Series 2007_16, Department of Economics, Loughborough University, revised May 2007.
  6. Malikane, Christopher & Ojah, Kalu, 2014. "Fisher's Relation and the Term Structure: Implications for IS Curves," MPRA Paper 55553, University Library of Munich, Germany.

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