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Identifying Taylor Rules in Macro-finance Models

  • David Backus
  • Mikhail Chernov
  • Stanley Zin

Identification problems arise naturally in forward-looking models when agents observe more than economists. We illustrate the problem in several New Keynesian and macro-finance models in which the Taylor rule includes a shock unseen by economists. We show that identification of the rule's parameters requires restrictions on the form of the shock. A state-space treatment verifies that this works when we observe the state of the economy and when we infer it from observable macroeconomic variables or asset prices.

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File URL: http://pages.stern.nyu.edu/~dbackus/Identification/ms/BCZ_trident_latest.pdf
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Paper provided by New York University, Leonard N. Stern School of Business, Department of Economics in its series Working Papers with number 13-12.

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Date of creation: 2013
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Handle: RePEc:ste:nystbu:13-12
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New York University, Leonard N. Stern School of Business, Department of Economics, 44 West 4th Street, New York, NY 10012-1126

Phone: (212) 998-0860
Fax: (212) 995-4218
Web page: http://w4.stern.nyu.edu/economics/

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