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The Empirical Relevance of Simple Forward- and Backward-looking Models: A View from a Dynamic General Equilibrium Model

Listed author(s):
  • Lindé, Jesper

    ()

    (Research Department, Central Bank of Sweden)

Recent research have provided evidence that backward-looking models fit the data well while purely forward-looking models seem to be inconsistent with data. Consequently, many recent papers in the monetary policy rule literature have used "hybrid" models, which contain both backward- and forward-looking components. In this paper, I demonstrate that a dynamic general equilibrium model with flexible prices and forward-looking properties cannot account for the empirical findings, i.e. that backward-looking behavior seems more important than forward-looking behavior, and that backward-looking models fit the data better than purely forward-looking models. The results also show that the equilibrium model cannot replicate the estimated high weight on backward-looking behavior on US data for the hybrid model.

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File URL: http://www.riksbank.se/upload/Dokument_riksbank/Kat_foa/wp_130.pdf
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Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 130.

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Length: 30 pages
Date of creation: 01 Dec 2001
Handle: RePEc:hhs:rbnkwp:0130
Contact details of provider: Postal:
Sveriges Riksbank, SE-103 37 Stockholm, Sweden

Phone: 08 - 787 00 00
Fax: 08-21 05 31
Web page: http://www.riksbank.com/
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