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New Keynesian Models and the Kydland and Prescott Test

Author

Listed:
  • Juan Paez-Farrell

    (Hull University & Julian Hodge Institute of Applied Macroeconomics)

Abstract

This paper evaluates New Keynesian models using RBC methods for a number of key macroeconomic variables. Its main findings are that the NK model provides a good description of the behaviour of real variables but performs very poorly when nominal variables are considered. The latter result is puzzling, given the success of NK models in replicating impulse response function and presents a challenge for current models.

Suggested Citation

  • Juan Paez-Farrell, 2004. "New Keynesian Models and the Kydland and Prescott Test," Macroeconomics 0411003, EconWPA, revised 24 Nov 2004.
  • Handle: RePEc:wpa:wuwpma:0411003
    Note: Type of Document - pdf; pages: 24. This paper evaluates NK models using RBC methods and finds that they have difficulty matching the data.
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    File URL: http://econwpa.repec.org/eps/mac/papers/0411/0411003.pdf
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    References listed on IDEAS

    as
    1. Casares, Miguel & McCallum, Bennett T., 2006. "An optimizing IS-LM framework with endogenous investment," Journal of Macroeconomics, Elsevier, vol. 28(4), pages 621-644, December.
    2. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    3. King, Robert G. & Rebelo, Sergio T., 1999. "Resuscitating real business cycles," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 14, pages 927-1007 Elsevier.
    4. Long, John B, Jr & Plosser, Charles I, 1983. "Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 39-69, February.
    5. Rudd, Jeremy & Whelan, Karl, 2005. "Does Labor's Share Drive Inflation?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 297-312, April.
    6. King, Robert G. & Plosser, Charles I., 1994. "Real business cycles and the test of the Adelmans," Journal of Monetary Economics, Elsevier, vol. 33(2), pages 405-438, April.
    7. Lawrence H. Summers, 1986. "Some skeptical observations on real business cycle theory," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 23-27.
    8. George T. McCandless & Warren E. Weber, 1995. "Some monetary facts," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-11.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    New Keynesian; Business Cycles; Inflation;

    JEL classification:

    • E - Macroeconomics and Monetary Economics

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