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New Keynesian Models and the Kydland and Prescott Test

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  • Juan Paez-Farrell

    (Hull University & Julian Hodge Institute of Applied Macroeconomics)

Abstract

This paper evaluates New Keynesian models using RBC methods for a number of key macroeconomic variables. Its main findings are that the NK model provides a good description of the behaviour of real variables but performs very poorly when nominal variables are considered. The latter result is puzzling, given the success of NK models in replicating impulse response function and presents a challenge for current models.

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File URL: http://128.118.178.162/eps/mac/papers/0411/0411003.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0411003.

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Length: 24 pages
Date of creation: 02 Nov 2004
Date of revision: 24 Nov 2004
Handle: RePEc:wpa:wuwpma:0411003

Note: Type of Document - pdf; pages: 24. This paper evaluates NK models using RBC methods and finds that they have difficulty matching the data.
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Web page: http://128.118.178.162

Related research

Keywords: New Keynesian; Business Cycles; Inflation;

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References

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  1. Richard Clarida & Jordi Galí & Mark Gertler, 1997. "The science of monetary policy: A new Keynesian perspective," Economics Working Papers 356, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 1999.
  2. Rudd, Jeremy & Whelan, Karl, 2005. "Does Labor's Share Drive Inflation?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 297-312, April.
  3. King, Robert G. & Plosser, Charles I., 1994. "Real business cycles and the test of the Adelmans," Journal of Monetary Economics, Elsevier, vol. 33(2), pages 405-438, April.
  4. Casares, Miguel & McCallum, Bennett T., 2006. "An optimizing IS-LM framework with endogenous investment," Journal of Macroeconomics, Elsevier, vol. 28(4), pages 621-644, December.
  5. Robert G. King & Sergio T. Rebelo, 2000. "Resuscitating Real Business Cycles," NBER Working Papers 7534, National Bureau of Economic Research, Inc.
  6. Lawrence H. Summers, 1986. "Some skeptical observations on real business cycle theory," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 23-27.
  7. George T. McCandless, Jr. & Warren E. Weber, 1995. "Some monetary facts," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-11.
  8. Long, John B, Jr & Plosser, Charles I, 1983. "Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 39-69, February.
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