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Monetary Policy Analysis in Backward-Looking Models

Author

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  • Jesper Linde

Abstract

In this paper, I use a dynamic general equilibrium model to quantify how sensitive a typical backward-looking model used in monetary policy analysis is to the Lucas critique. The results show that the backward-looking model exhibit significant parameter instability that is economically important, but that a standard econometric test for detecting this instability fails to do so accurately in small samples. These findings suggest that the relative merits of alternative monetary policy rules should be checked in an equilibrium framework.

Suggested Citation

  • Jesper Linde, 2002. "Monetary Policy Analysis in Backward-Looking Models," Annals of Economics and Statistics, GENES, issue 67-68, pages 155-182.
    • Handle: RePEc:adr:anecst:y:2002:i:67-68:p:155-182
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    File URL: http://www.jstor.org/stable/20076346
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    Cited by:

    1. Patrick Fève, 2005. "Voies de la modélisation macro-économétrique?," Revue Française d'Économie, Programme National Persée, vol. 20(1), pages 147-179.
    2. Paolo Gelain, 2007. "The Optimal Monetary Policy Rule For the European Central Bank," EcoMod2007 23900028, EcoMod.

    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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