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New Keynesian models: not yet useful for policy analysis

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

Abstract

In the 1970s macroeconomists often disagreed bitterly. Macroeconomists have now largely converged on method, model design, and macroeconomic policy advice. The disagreements that remain all stem from the practical implementation of the methodology. Some macroeconomists think that New Keynesian models are on the verge of being useful for quarter-to-quarter quantitative policy advice. We do not. We argue that the shocks in these models are dubiously structural and show that many of the features of the model as well as the implications due to these features are inconsistent with microeconomic evidence. These arguments lead us to conclude that New Keynesian models are not yet useful for policy analysis.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Working Papers with number 664.

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Date of creation: 2008
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Handle: RePEc:fip:fedmwp:664

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  1. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper 0107, Federal Reserve Bank of Cleveland.
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  7. Andrew Atkeson & Patrick J. Kehoe, 2008. "On the need for a new approach to analyzing monetary policy," Staff Report 412, Federal Reserve Bank of Minneapolis.
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  10. Fuhrer, Jeffrey C, 1996. "Monetary Policy Shifts and Long-Term Interest Rates," The Quarterly Journal of Economics, MIT Press, vol. 111(4), pages 1183-1209, November.
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  17. Frank Smets & Raf Wouters, 2002. "An estimated dynamic stochastic general equilibrium model of the euro area," Working Paper Research 35, National Bank of Belgium.
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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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