Animal Spirits, Persistent Unemployment and the Belief Function
This paper presents a theory of the monetary transmission mechanism in a monetary version of Farmer’s (2009) model in which there are multiple equilibrium unemployment rates. The model has two equations in common with the new-Keynesian model; the optimizing IS curve and the policy rule. It differs from the new-Keynesian model by replacing the Phillips curve with a belief function to determine expectations of nominal income growth. I estimate both models using U.S. data and I show that the Farmer monetary model fits the data better than its new-Keynesian competitor.
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|Date of creation:||Nov 2010|
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- John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1.
- Beyer, Andreas & Farmer, Roger E A, 2003.
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"Varieties of Crises and Their Dates
[This Time Is Different: Eight Centuries of Financial Folly]," Introductory Chapters, Princeton University Press.
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- N. Gregory Mankiw & Ricardo Reis, 2001.
"Sticky information versus sticky prices: a proposal to replace the New-Keynesian Phillips curve,"
Federal Reserve Bank of San Francisco, issue Jun.
- N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1295-1328.
- N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," NBER Working Papers 8290, National Bureau of Economic Research, Inc.
- Mankiw, N. Gregory & Reis, Ricardo, 2002. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," Scholarly Articles 3415324, Harvard University Department of Economics.
- N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," Harvard Institute of Economic Research Working Papers 1922, Harvard - Institute of Economic Research.
- Peter J. Klenow & Benjamin A. Malin, 2010.
"Microeconomic Evidence on Price-Setting,"
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15826, National Bureau of Economic Research, Inc.
- Leeper, Eric M., 1991. "Equilibria under 'active' and 'passive' monetary and fiscal policies," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 129-147, February.
- Roger E. A. Farmer, 1999. "Macroeconomics of Self-fulfilling Prophecies, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062038.
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