Inflation in the Great Recession and New Keynesian Models

Marco Del Negro, Marc Giannoni and Frank Schorfheide

American Economic Journal: Macroeconomics, 2015, vol. 7, issue 1, 168-96

Abstract: Several prominent economists have argued that existing DSGE models cannot properly account for the evolution of key macroeconomic variables during and following the recent Great Recession. We challenge this argument by showing that a standard DSGE model with financial frictions available prior to the recent crisis successfully predicts a sharp contraction in economic activity along with a protracted but relatively modest decline in inflation, following the rise in financial stress in 2008:IV. The model does so even though inflation remains very dependent on the evolution of economic activity and of monetary policy. (JEL E12, E31, E32, E37, E44, E52, G01)

JEL-codes: E12 E31 E32 E37 E44 E52 G01 (search for similar items in EconPapers)
Date: 2015
Note: DOI: 10.1257/mac.20140097
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Citations: View citations in EconPapers (240)

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Related works:
Working Paper: Inflation in the Great Recession and New Keynesian Models (2014)
Working Paper: Inflation in the Great Recession and New Keynesian Models (2014)
Working Paper: Inflation in the Great Recession and New Keynesian models (2013)
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