Specifying and Estimating New Keynesian Models with Instrument Rules and Optimal Monetary Policies

Richard Dennis

No 2004-17, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: This paper looks at whether sticky-price New Keynesian models with microfounded inertia can usefully describe U.S. data. I estimate a range of models, considering specifications with either internal or external consumption habits, specifications containing Taylor-type rules or an optimal discretionary rule, and specifications where inflation is driven by movements in the gap or real marginal costs. Among other results, I find that models with external habits produce very similar aggregate behavior to models with internal habits. I also find that modeling monetary policy in terms of an optimal discretionary rule describes U.S. data as well as a forward-looking Taylor-type rule does, and that the data favor the traditional gap-based Phillips curve over specifications containing real marginal costs.

Keywords: Monetary policy; Keynesian economics; Econometric models (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 34
Date: 2005-01-01
Note: PDF date: First Version: September 2004. This Version: January 2005.
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfwp:2004-17

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DOI: 10.24148/wp2004-17

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