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Some UK evidence on the Forward Looking IS Equation:

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  • Paul Turner

    ()
    (Dept of Economics, Loughborough University)

Abstract

This paper seeks to demonstrate that a backward looking specification of the IS curve using UK data can encompass the forward looking model recently discussed by Kara and Nelson (2004). By relaxing the restriction that the interest rate and the inflation rate enter the IS curve with coefficients of equal magnitude but opposite sign, we obtain IS curve estimates which are empirically plausible and which encompass the rival specification.

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File URL: http://www.lboro.ac.uk/departments/ec/RePEc/lbo/lbowps/Turner_IS-Curve_July_2007.pdf
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Bibliographic Info

Paper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2007_16.

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Date of creation: May 2007
Date of revision: May 2007
Handle: RePEc:lbo:lbowps:2007_16

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Postal: Loughborough, Leicestershire, LE11 3TU
Phone: +44 (0) 1509 222701
Fax: +44 (0) 1509 223910
Web page: http://www.lboro.ac.uk/departments/sbe/research/economics/index.html
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Keywords: IS curve; forward looking; real interest rate.;

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  1. S. G. B Henry & A. R. Pagan, 2004. "The Econometrics of the New Keynesian Policy Model: Introduction," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(s1), pages 581-607, 09.
  2. Ray C. Fair, 2001. "On Modeling the Effects of Inflation Shocks," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1300, Cowles Foundation for Research in Economics, Yale University, revised Mar 2002.
  3. Rudebusch, Glenn D & Svensson, Lars E O, 1998. "Policy Rules for Inflation Targeting," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1999, C.E.P.R. Discussion Papers.
  4. Charles Goodhart & Boris Hofmann, 2003. "The IS Curve and the Transmission of Monetary Policy: Is there a Puzzle?," FMG Special Papers, Financial Markets Group sp150, Financial Markets Group.
  5. Bennett T. McCallum, 2001. "Should Monetary Policy Respond Strongly to Output Gaps?," American Economic Review, American Economic Association, American Economic Association, vol. 91(2), pages 258-262, May.
  6. Robert G. King, 2000. "The new IS-LM model : language, logic, and limits," Economic Quarterly, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue Sum, pages 45-103.
  7. Davidson, James E H, et al, 1978. "Econometric Modelling of the Aggregate Time-Series Relationship between Consumers' Expenditure and Income in the United Kingdom," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 88(352), pages 661-92, December.
  8. Amit Kara & Edward Nelson, 2004. "International evidence on the stability of the optimizing IS equation," Working Papers, Federal Reserve Bank of St. Louis 2003-020, Federal Reserve Bank of St. Louis.
  9. Arturo Estrella & Jeffrey C. Fuhrer, 2003. "Monetary Policy Shifts and the Stability of Monetary Policy Models," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 94-104, February.
  10. Arturo Extrella & Jeffrey C. Fuhrer, 1998. "Dynamic inconsistencies: counterfactual implications of a class of rational expectations models," Working Papers, Federal Reserve Bank of Boston 98-5, Federal Reserve Bank of Boston.
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