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International Evidence on the Stability of the Optimizing IS Equation

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  • Amit Kara
  • Edward Nelson

Abstract

We provide international evidence on the issue of whether the optimizing IS equation is more stable than a backward-looking alternative. This evidence consists of estimates of IS equations on quarterly data for the UK and Australia, both for the full sample of the last 40 years and for the period following major monetary policy shifts in 1979-80. Results suggest the parameters in the optimizing IS equations are more empirically stable than those of the backward-looking alternative. The use of dynamic general equilibrium modelling in empirical work does deliver material benefits, in the form of equations more suitable for policy analysis. Copyright 2004 Blackwell Publishing Ltd.

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  • Amit Kara & Edward Nelson, 2004. "International Evidence on the Stability of the Optimizing IS Equation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(s1), pages 687-712, September.
  • Handle: RePEc:bla:obuest:v:66:y:2004:i:s1:p:687-712
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    Cited by:

    1. Lai, Ching-chong & Fang, Chung-rou, 2012. "Is the honeymoon effect valid in the presence of both exchange rate and output expectations? A graphical analysis," International Review of Economics & Finance, Elsevier, vol. 21(1), pages 140-146.
    2. Paul Turner, 2007. "Some UK evidence on the Forward Looking IS Equation:," Discussion Paper Series 2007_16, Department of Economics, Loughborough University, revised May 2007.
    3. Walter Bazan-Palomino & Gabriel Rodriguez, 2014. " The New Keynesian Framework for a Small Open Economy with Structural Breaks: Empirical Evidence from Peru," Documentos de Trabajo / Working Papers 2014-384, Departamento de Economía - Pontificia Universidad Católica del Perú.
    4. Edward Nelson, 2005. "Monetary Policy Neglect and the Great Inflation in Canada, Australia, and New Zealand," International Journal of Central Banking, International Journal of Central Banking, vol. 1(1), May.
    5. Männistö, Hanna-Leena, 2005. "Forecasting with a forward-looking DGE model : combining long-run views of financial markes with macro forecasting," Research Discussion Papers 21/2005, Bank of Finland.
    6. Anari, Ali & Kolari, James, 2016. "Dynamics of interest and inflation rates," Journal of Empirical Finance, Elsevier, vol. 39(PA), pages 129-144.
    7. Juselius, Mikael, 2008. "Testing the New Keynesian Model on U.S. and Euro Area Data," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 2, pages 1-26.
    8. Malikane, Christopher & Ojah, Kalu, 2014. "Fisher's Relation and the Term Structure: Implications for IS Curves," MPRA Paper 55553, University Library of Munich, Germany.
    9. repec:bpj:bejmac:v:17:y:2017:i:2:p:9:n:1 is not listed on IDEAS

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