What We Don't Know About the Monetary Transmission Mechanism and Why We Don't Know It

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

No 4811, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 Benhabib and Farmer [1] 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.

Keywords: Benhabib-Farmer model; Identification; indeterminacy; new-Keynesian model (search for similar items in EconPapers)
JEL-codes: C39 C62 D51 E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-fmk, nep-mac and nep-mon
Date: 2004-12

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Journal Article: WHAT WE DON'T KNOW ABOUT THE MONETARY TRANSMISSION MECHANISM AND WHY WE DON'T KNOW IT (2008)
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