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Some observations in the high-frequency versions of a standard New-Keynesian model

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  • Franke, Reiner
  • Sacht, Stephen

Abstract

In a small-scale New-Keynesian model with a hybrid Phillips curve and IS equation, the paper is concerned with an arbitrary frequency of the agents' synchronized decision making. It investigates the validity of a fundamental methodological precept according to which no substantive prediction or explanation of a well-defined macroeconomic period model should depend on the real time length of the period. While this principle is basically satisfied as the period goes to zero, the impulse-response functions of the high-frequency versions can qualitatively as well as quantitatively be fairly dissimilar from their quarterly counterpart. The result proves to be robust under variations of the degree of price stickiness. The main conclusion is that DSGE modelling may be more sensitive to its choice of the agents' decision interval.

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File URL: http://mpra.ub.uni-muenchen.de/33358/
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 33358.

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Date of creation: Feb 2010
Date of revision: Jun 2011
Handle: RePEc:pra:mprapa:33358

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Keywords: Hybrid New-Keynesian model; high-frequency modelling; impulse-response functions; Foley's methodological precept;

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Citations

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Cited by:
  1. Sacht, Stephen, 2014. "Analysis of various shocks within the high-frequency versions of the baseline New-Keynesian model," Economics Working Papers, Christian-Albrechts-University of Kiel, Department of Economics 2014-02, Christian-Albrechts-University of Kiel, Department of Economics.
  2. Lengnick, Matthias & Wohltmann, Hans-Werner, 2010. "Agent-based financial markets and New Keynesian macroeconomics: A synthesis," Economics Working Papers, Christian-Albrechts-University of Kiel, Department of Economics 2010,10, Christian-Albrechts-University of Kiel, Department of Economics.
  3. Sacht, Stephen, 2014. "Optimal monetary policy responses and welfare analysis within the highfrequency New-Keynesian framework," Economics Working Papers, Christian-Albrechts-University of Kiel, Department of Economics 2014-03, Christian-Albrechts-University of Kiel, Department of Economics.

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