Macroeconometric equivalence, microeconomic dissonance, and the design of monetary policy

Andrew Levin (), David Lopez-Salido, Edward Nelson and Tack Yun ()

No 2008-035, Working Papers from Federal Reserve Bank of St. Louis

Abstract: Many recent studies in macroeconomics have focused on the estimation of DSGE models using a system of loglinear approximations to the models' nonlinear equilibrium conditions. The term macroeconometric equivalence encapsulates the idea that estimates using aggregate data based on first-order approximations to the equilibrium conditions of a DSGE model will not be able to distinguish between alternative underlying preferences and technologies. The concept of microeconomic dissonance refers to the fact that the underlying microeconomic differences become important when optimal monetary policy is analyzed in a nonlinear setting. The relevance of these concepts is established by analysis of optimal steady-state inflation and optimal policy in the stochastic economy using a small-scale New Keynesian model. Microeconomic and financial datasets are promising tools with which to overcome the equivalence problem.

Keywords: Monetary policy; Macroeconomics; Microeconomics (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

Downloads: (external link)
https://s3.amazonaws.com/real.stlouisfed.org/wp/2008/2008-035.pdf Full text (application/pdf)

Related works:
Journal Article: Macroeconometric equivalence, microeconomic dissonance, and the design of monetary policy (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:2008-035

Ordering information: This working paper can be ordered from

DOI: 10.20955/wp.2008.035

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of St. Louis Contact information at EDIRC.
Bibliographic data for series maintained by Scott St. Louis ().