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Unemployment in an Estimated New Keynesian Model

Author Info

  • Jordi Gal�
  • Frank Smets
  • Rafael Wouters

Abstract

We reformulate the Smets-Wouters (2007) framework by embedding the theory of unemployment proposed in Galí (2011a,b). We estimate the resulting model using postwar U.S. data, while treating the unemployment rate as an additional observable variable. Our approach overcomes the lack of identification of wage markup and labor supply shocks highlighted by Chari, Kehoe and McGrattan (2008) in their criticism of New Keynesian models, and allows us to estimate a "correct" measure of the output gap. In addition, the estimated model can be used to analyze the sources of unemployment fluctuations.

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Article provided by University of Chicago Press in its journal NBER Macroeconomics Annual.

Volume (Year): 26 (2012)
Issue (Month): 1 ()
Pages: 329 - 360

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Handle: RePEc:ucp:macann:doi:10.1086/663994
Contact details of provider: Web page: http://www.journals.uchicago.edu/MA/

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Find related papers by JEL classification:
  • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
  • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
  • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
  • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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