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Testing the New Keynesian Model on U.S. and Euro Area Data

Listed author(s):
  • Juselius, Mikael

I apply the Johansen and Swensen (1999, 2004) method of testing exact rational expectations within the cointegrated VAR (Vector Auto-Regressive) model, to testing the New Keynesian (NK) model. This method permits the testing of rational expectation systems, while allowing for non-stationary data. The NK-model is tested on quarterly U.S. and Euro area time series data. I find that the restrictions implied by the core equations of the NK-model are rejected regardless of sample periods or measures of real marginal costs. I also provide a tentative explanation of the results favored by previous researches.

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File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2008-24
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File URL: https://www.econstor.eu/bitstream/10419/18037/1/economics_2008-24.pdf
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Article provided by Kiel Institute for the World Economy (IfW) in its journal Economics: The Open-Access, Open-Assessment E-Journal.

Volume (Year): 2 (2008)
Issue (Month): ()
Pages: 1-26

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Handle: RePEc:zbw:ifweej:7350
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