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Technology Shocks in the New Keynesian Model

  • Peter N. Ireland

In the New Keynesian model, preference, cost-push, and monetary shocks all compete with the real business cycle model's technology shock in driving aggregate fluctuations. A version of this model, estimated via maximum likelihood, points to these other shocks as being more important for explaining the behavior of output, inflation, and interest rates in the postwar United States data. These results weaken the links between the current generation of New Keynesian models and the real business cycle models from which they were originally derived. They also suggest that Federal Reserve officials have often faced difficult trade-offs in conducting monetary policy.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10309.

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Date of creation: Feb 2004
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Publication status: published as Peter N. Ireland, 2004. "Technology Shocks in the New Keynesian Model," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 923-936, 01.
Handle: RePEc:nbr:nberwo:10309
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  8. Richard Clarida & Jordi Galí & Mark Gertler, 1997. "Monetary policy rules and macroeconomic stability: Evidence and some theory," Economics Working Papers 350, Department of Economics and Business, Universitat Pompeu Fabra, revised May 1999.
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  18. Fuhrer, Jeffrey C & Moore, George R, 1995. "Monetary Policy Trade-offs and the Correlation between Nominal Interest Rates and Real Output," American Economic Review, American Economic Association, vol. 85(1), pages 219-39, March.
  19. Thomas F. Cooley & Gary D. Hansen, 1987. "The Inflation Tax in a Real Business Cycle Model," UCLA Economics Working Papers 496, UCLA Department of Economics.
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