New Keynesian Endogenous Stabilization in a Panel of Countries

David Kiefer

Working Paper Series, Department of Economics, University of Utah from University of Utah, Department of Economics

Abstract: In the new Keynesian model of endogenous stabilization governments have objectives with respect to macroeconomic performance, but are constrained by an augmented Phillips curve. We develop an econometric characterization of the political-economic equilibrium using the Kalman filter to model the unobserved natural rate. Applying this methodology to a panel of North Atlantic countries, we find it consistent with history with a few qualifications. For one, governments are more likely to target growth rates, than output gaps. And, inflation expectations are more likely adaptive, than rational. Also, the error restrictions implied by the standard inflation-productivity shocks formulation needs to be relaxed.

Keywords: endogenous stabilization; objectives; expectations; Kalman filtering (search for similar items in EconPapers)
JEL-codes: E61 E63 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2008
New Economics Papers: this item is included in nep-cba and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:uta:papers:2008_19

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