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New Keynesian Models: Not Yet Useful for Policy Analysis

  • V.V. Chari
  • Patrick J. Kehoe
  • Ellen R. McGrattan

Macroeconomists have largely converged on method, model design, reduced-form shocks, and principles of policy advice. Our main disagreements today are about implementing the methodology. Some think New Keynesian models are ready to be used for quarter-to-quarter quantitative policy advice; we do not. Focusing on the state-of-the-art version of these models, we argue that some of its shocks and other features are not structural or consistent with microeconomic evidence. Since an accurate structural model is essential to reliably evaluate the effects of policies, we conclude that New Keynesian models are not yet useful for policy analysis.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14313.

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Date of creation: Sep 2008
Date of revision:
Publication status: published as V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2009. "New Keynesian Models: Not Yet Useful for Policy Analysis," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 242-66, January.
Handle: RePEc:nbr:nberwo:14313
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