Indeterminate Equilibria in New Keynesian DSGE Model: An Application to the US Great Moderation
AbstractThis paper tests “Bad Policy” Hypothesis which refers to the Great Moderation in the US. We examine this hypothesis by simulating model based impulse response functions for the both pre-Volcker period and post 1982 period. Deriving and simulating standard New Keynesian DSGE Model explicitly, we find that while post 1982 policy i.e. active policy, is consistent with the unique stable equilibrium characteristics; pre-Volcker or passive monetary policy generates equilibrium indeterminacy. Moreover, our simulated-impulse response functions show that the response of inflation and the output gap in post 82 period is weaker than the macroeconomic responses of the pre-Volcker period.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 10322.
Date of creation: 15 May 2008
Date of revision:
The Great Moderation; Indeterminacy; Determinate Equilibrium; New Keynesian DSGE Model; Monetary Policy; Sunspot shocks;
Find related papers by JEL classification:
- E0 - Macroeconomics and Monetary Economics - - General
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-09-13 (All new papers)
- NEP-CBA-2008-09-13 (Central Banking)
- NEP-DGE-2008-09-13 (Dynamic General Equilibrium)
- NEP-MAC-2008-09-13 (Macroeconomics)
- NEP-MON-2008-09-13 (Monetary Economics)
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