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New-Keynesian Models and Monetary Policy: A Re-examination of the Stylized Facts

  • Ulf Söderström
  • Paul Söderlind
  • Anders Vredin

Using an empirical New-Keynesian model with optimal discretionary monetary policy, we estimate key parameters-the central bank's preference parameters; the degree of forward-looking behavior in the determination of inflation and output; and the variances of inflation and output shocks-to match some broad characteristics of U.S. data. The parameterization we obtain implies a small concern for output stability but a large preference for interest rate smoothing, and a small degree of forward-looking behavior in price-setting but a large degree of forward-looking in the determination of output. Our methodology also allows us to carefully examine the consequences of alternative parameterizations and to provide intuition for our results. Copyright The editors of the "Scandinavian Journal of Economics", 2005 .

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9442.2005.00421.x
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Article provided by Wiley Blackwell in its journal The Scandinavian Journal of Economics.

Volume (Year): 107 (2005)
Issue (Month): 3 (09)
Pages: 521-546

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Handle: RePEc:bla:scandj:v:107:y:2005:i:3:p:521-546
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  1. Julio J. Rotemberg & Michael Woodford, 1998. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy: Expanded Version," NBER Technical Working Papers 0233, National Bureau of Economic Research, Inc.
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