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Competitive Moment Matching of a New-Keynesian and an Old-Keynesian Model

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  • Franke, Reiner

Abstract

The paper considers two rival models referring to the new macroeconomic consensus: a standard three-equations model of the New-Keynesian variety and dynamic adjustments of a business and an inflation climate in an `Old-Keynesian' tradition. Over the two subperiods of the Great Inflation and Great Moderation, both of them are estimated by the method of simulated moments. An innovative feature is here that it does not only include the autocovariances up to eight lags of quarterly output, inflation and the interest rate, but optionally also a measure of the raggedness of the three variables. In short, the performance of the Old-Keynesian model is very satisfactory and similar to, unless better than, the New-Keynesian model. In particular, the Old-Keynesian model is better suited to match the new moments without deteriorating the original second moments too much.

Suggested Citation

  • Franke, Reiner, 2013. "Competitive Moment Matching of a New-Keynesian and an Old-Keynesian Model," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79988, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc13:79988
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    Cited by:

    1. Christian Schoder, 2017. "Estimating Keynesian models of business fluctuations using Bayesian Maximum Likelihood," Review of Keynesian Economics, Edward Elgar Publishing, vol. 5(4), pages 586–630-5, October.

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    More about this item

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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