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New Keynesian models: not yet useful for policy analysis

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  • V. V. Chari
  • Patrick J. Kehoe
  • Ellen R. McGrattan

Abstract

Macroeconomists have largely converged on method, model design, reduced-form shocks, and principles of policy advice. Our main disagreements today are about implementing the methodology. Some think New Keynesian models are ready to be used for quarter-to-quarter quantitative policy advice; we do not. Focusing on the state-of-the-art version of these models, we argue that some of its shocks and other features are not structural or consistent with microeconomic evidence. Since an accurate structural model is essential to reliably evaluate the effects of policies, we conclude that New Keynesian models are not yet useful for policy analysis.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 409.

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Date of creation: 2008
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Handle: RePEc:fip:fedmsr:409

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Keywords: Keynesian economics ; Macroeconomics;

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Minneapolis Redux
    by Stephen Williamson in Stephen Williamson: New Monetarist Economics on 2013-12-22 22:47:00
  2. Kocherlakota Speaks
    by Agent Continuum in Agent Continuum on 2010-05-17 18:43:50
  3. Friedman vs. Microfoundations
    by YouNotSneaky! in YouNotSneaky on 2008-10-23 02:10:00
  4. Blanchard's sad state of macroeconomics
    by Economic Logician in Economic Logic on 2008-10-21 15:04:00
  5. O Que Ele Anda Lendo???
    by Angelo M. Fasolo in The Duke of Hazard on 2010-04-26 04:49:00
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