New Keynesian Endogenous Stabilization in a Panel of Countries

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New Keynesian Endogenous Stabilization in a Panel of Countries

Author Info

David Kiefer

Abstract

In the new Keynesian model of endogenous stabilization governments have objectives with respect to macroeconomic performance, but are constrained by an augmented Phillips curve. We develop an econometric characterization of the political-economic equilibrium using the Kalman filter to model the unobserved natural rate. Applying this methodology to a panel of North Atlantic countries, we find it consistent with history with a few qualifications. For one, governments are more likely to target growth rates, than output gaps. And, inflation expectations are more likely adaptive, than rational. Also, the error restrictions implied by the standard inflation-productivity shocks formulation needs to be relaxed.

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Paper provided by University of Utah, Department of Economics in its series Working Paper Series, Department of Economics, University of Utah with number 2008_19.

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Length: 27 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:uta:papers:2008_19

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Find related papers by JEL classification:
E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization

This paper has been announced in the following NEP Reports:

NEP-ALL-2008-11-25 (All new papers)
NEP-CBA-2008-11-25 (Central Banking)
NEP-MAC-2008-11-25 (Macroeconomics)

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