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Some International Evidence for Keynesian Economics Without the Phillips Curve

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  • Roger E A Farmer
  • Giovanni Nicolo

Abstract

Farmer and Nicolò (2018) show that the Farmer Monetary (FM)-Model outperforms the threeequation New-Keynesian (NK)-model in post war U.S. data. In this paper, we compare the marginal data density of the FM-model with marginal data densities for determinate and indeterminate versions of the NK-model for three separate samples using U.S., U.K. and Canadian data. We estimate versions of both models that restrict the parameters of the private sector equations to be the same for all three countries. Our preferred specification is the constrained version of the FMmodel which has a marginal data density that is more than 30 log points higher than the NK alternative. Our findings also demonstrate that cross-country macroeconomic differences are well explained by the different shocks that hit each economy and by differences in the ways in which national central banks reacted to those shocks.

Suggested Citation

  • Roger E A Farmer & Giovanni Nicolo, 2019. "Some International Evidence for Keynesian Economics Without the Phillips Curve," National Institute of Economic and Social Research (NIESR) Discussion Papers 505, National Institute of Economic and Social Research.
    • Handle: RePEc:nsr:niesrd:505
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    References listed on IDEAS

    as
    1. Farmer, Roger E.A. & Nicolò, Giovanni, 2018. "Keynesian economics without the Phillips curve," Journal of Economic Dynamics and Control, Elsevier, vol. 89(C), pages 137-150.
    2. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(1), pages 147-180.
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    7. Beyer, Andreas & Farmer, Roger E.A., 2007. "Natural rate doubts," Journal of Economic Dynamics and Control, Elsevier, vol. 31(3), pages 797-825, March.
    8. Farmer, Roger E.A., 2000. "Two New Keynesian Theories Of Sticky Prices," Macroeconomic Dynamics, Cambridge University Press, vol. 4(1), pages 74-107, March.
    9. Canova, Fabio & Gambetti, Luca, 2009. "Structural changes in the US economy: Is there a role for monetary policy?," Journal of Economic Dynamics and Control, Elsevier, vol. 33(2), pages 477-490, February.
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    12. Farmer, Roger, 2013. "The Natural Rate Hypothesis: an idea past its sell-by date," Bank of England Quarterly Bulletin, Bank of England, vol. 53(3), pages 244-256.
    13. John B. Taylor, 1999. "A Historical Analysis of Monetary Policy Rules," NBER Chapters, in: Monetary Policy Rules, pages 319-348, National Bureau of Economic Research, Inc.
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    17. Ellison, Martin, 2018. "Comments on Keynesian economics without the Phillips curve by R.E.A. Farmer and G. Nicolo," Journal of Economic Dynamics and Control, Elsevier, vol. 89(C), pages 151-153.
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    Citations

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    Cited by:

    1. Pagan, Adrian & Robinson, Tim, 2022. "Excess shocks can limit the economic interpretation," European Economic Review, Elsevier, vol. 145(C).
    2. Francesco Bianchi & Giovanni Nicolo & Dongho Song, 2023. "Inflation and Real Activity over the Business Cycle," Finance and Economics Discussion Series 2023-038, Board of Governors of the Federal Reserve System (U.S.).
    3. Farmer, Roger, 2019. "The Indeterminacy School in Macroeconomics," CEPR Discussion Papers 13745, C.E.P.R. Discussion Papers.
    4. Giovanni Nicolo, 2020. "Monetary Policy, Self-Fulfilling Expectations and the U.S. Business Cycle," Finance and Economics Discussion Series 2020-035, Board of Governors of the Federal Reserve System (U.S.).
    5. Thibault Lemaire, 2020. "Phillips in A Revolution: Unemployment and Prices in Early 21st Century Egypt," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-03948605, HAL.
    6. Roger E A Farmer, 2020. "The importance of beliefs in shaping macroeconomic outcomes," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 36(3), pages 675-711.
    7. Roger E A Farmer, 2019. "The Indeterminacy Agenda in Macroeconomics," National Institute of Economic and Social Research (NIESR) Discussion Papers 507, National Institute of Economic and Social Research.

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    More about this item

    Keywords

    Phillips curve; Keynesian economics;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • F0 - International Economics - - General

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