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Identifying Taylor Rules in Macro-finance Models

Author

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  • David Backus
  • Mikhail Chernov
  • Stanley Zin

Abstract

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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Suggested Citation

  • David Backus & Mikhail Chernov & Stanley Zin, 2013. "Identifying Taylor Rules in Macro-finance Models," Working Papers 13-12, New York University, Leonard N. Stern School of Business, Department of Economics.
  • Handle: RePEc:ste:nystbu:13-12
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    File URL: http://pages.stern.nyu.edu/~dbackus/Identification/ms/BCZ_trident_latest.pdf
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    References listed on IDEAS

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    Cited by:

    1. John Y. Campbell & Carolin Pflueger & Luis M. Viceira, 2013. "Macroeconomic Drivers of Bond and Equity Risks," Harvard Business School Working Papers 14-031, Harvard Business School, revised Aug 2018.
    2. repec:agr:journl:v:1(614):y:2018:i:1(614):p:41-54 is not listed on IDEAS
    3. John Y. Campbell & Carolin Pflueger & Luis M. Viceira, 2013. "Macroeconomic Drivers of Bond and Equity Risks," Harvard Business School Working Papers 14-031, Harvard Business School, revised Aug 2018.

    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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