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How well does the New Keynesian sticky-price model fit the data?

Listed author(s):
  • John M. Roberts

The New Keynesian sticky-price model has become increasingly popular for monetary-policy analysis. However, there have been conflicting results on the empirical performance of the model. In this paper, I attempt to reconcile these conflicting claims by examining various specifications of the model within the context of a single framework. I find that the New Keynesian model does not fit the U.S. data well; in particular, the model requires additional lags of inflation not implied by the model under rational expectations. These additional lags have the interpretation that some fraction of the population uses a simple univariate rule for forecasting inflation.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2001-13.

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Date of creation: 2001
Handle: RePEc:fip:fedgfe:2001-13
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