WHAT WE DON'T KNOW ABOUT THE MONETARY TRANSMISSION MECHANISM AND WHY WE DON'T KNOW IT

Andreas Beyer () and Roger E. A. Farmer ()

Macroeconomic Dynamics, 2008, vol. 12, issue S1, pages 60-74

Abstract: We study identification in a class of linear rational expectations models. For any given exactly identified model, we provide an algorithm that generates a class of equivalent models that have the same reduced form. We use our algorithm to show that a model proposed by Jess Benhabib and Roger Farmer is observationally equivalent to the standard new-Keynesian model when observed over a single policy regime. However, the two models have different implications for the design of an optimal policy rule.

Date: 2008

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Working Paper: What We Don't Know About the Monetary Transmission Mechanism and Why We Don't Know It (2004)
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Persistent link: http://EconPapers.repec.org/RePEc:cup:macdyn:v:12:y:2008:i:s1:p:60-74_06

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