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Identifying Taylor Rules in Macro-finance Models

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  • David Backus
  • Mikhail Chernov
  • Stanley Zin

Abstract

Identification problems arise naturally in forward-looking models when agents observe more than economists. We illustrate the problem in several macro-finance models with Taylor rules. When the shock to the rule is observed by agents but not economists, identification of the rule's parameters requires restrictions on the form of the shock. We show how such restrictions work when we observe the state directly, indirectly, or infer it from observables.

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File URL: http://pages.stern.nyu.edu/~dbackus/Identification/ms/BCZ_trident_latest.pdf
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Bibliographic Info

Paper provided by New York University, Leonard N. Stern School of Business, Department of Economics in its series Working Papers with number 13-12.

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Date of creation: 2013
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Handle: RePEc:ste:nystbu:13-12

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Postal: New York University, Leonard N. Stern School of Business, Department of Economics, 44 West 4th Street, New York, NY 10012-1126
Phone: (212) 998-0860
Fax: (212) 995-4218
Web page: http://w4.stern.nyu.edu/economics/
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Cited by:
  1. John Y. Campbell & Carolin Pflueger & Luis M. Viceira, 2013. "Monetary Policy Drivers of Bond and Equity Risks," Harvard Business School Working Papers 14-031, Harvard Business School, revised Apr 2014.

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