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Testing the New Keynesian Model on U.S. and Euro Area Data

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  • Juselius, Mikael

Abstract

I apply the Johansen and Swensen (1999, 2004) method of testing exact rational expectations within the cointegrated VAR (Vector Auto-Regressive) model, to testing the New Keynesian (NK) model. This method permits the testing of rational expectation systems, while allowing for non-stationary data. The NK-model is tested on quarterly U.S. and Euro area time series data. I find that the restrictions implied by the core equations of the NK-model are rejected regardless of sample periods or measures of real marginal costs. I also provide a tentative explanation of the results favored by previous researches. --

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Paper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2008-23.

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Date of creation: 2008
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Handle: RePEc:zbw:ifwedp:7285

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Keywords: New Keynesian Phillips curve; cointegration; vector autoregressive model;

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Cited by:
  1. Boug, Pål & Cappelen, Adne & Swensen, Anders Rygh, 2010. "The new Keynesian Phillips curve revisited," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 34(5), pages 858-874, May.
  2. Ordóñez, Javier & Jusélius, Katarina, 2009. "Balassa-Samuelson and Wage, Price and Unemployment Dynamics in the Spanish Transition to EMU Membership," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 3(4), pages 1-30.
  3. Philip Arestis, 2013. "Inflation Targeting: A Critical Approach," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, Central Bank of Argentina, Economic Research Department, vol. 1(68), pages 7-21, June.

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