The Credibility Problem Revisited: Thirty Years on from Kydland and Prescott

Paul Levine (), Joseph Gerson Pearlman () and Bo Yang ()

Review of International Economics, 2008, vol. 16, issue 4, pages 728-746

Abstract: Macroeconomics research has changed profoundly since the Kydland-Prescott seminal paper. In order to address the Lucas Critique, modeling is now based on micro-foundations treating agents as rational utility optimizers. Bayesian estimation has produced models which are more data-consistent than those based simply on calibration. With micro-foundations and new linear-quadratic techniques, normative policy based on welfare analysis is now possible. In the open economy, policy involves a "game" with policymakers and private institutions or private individuals as players. This paper attempts to reassess the Kydland-Prescott contribution in the light of these developments. Copyright © 2008 The Authors. Journal compilation © 2008 Blackwell Publishing Ltd.

Date: 2008

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