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The Euler equation around the world

Livio Stracca ()

The B.E. Journal of Macroeconomics, 2017, vol. 17, issue 2, 9

Abstract: This paper discusses the empirical challenges associated with the estimation of the New Keynesian IS curve and provides an estimate of the forward looking IS curve by pooling macro data from 31 countries, delivering over 4000 observations on which to test the specification. The main finding of the paper is that it is possible to recover the theory-consistent IS curve from macro data when the sample size is large enough and the intrument is valid and strong. I also test the validity of the instruments by comparing estimates in countries which have or do not have an independent monetary policy reaction function. Another relevant finding is that the slope of the IS curve appears to have steepened over time since the 1990s, probably reflecting financial liberalisation.

Keywords: identification; instrumental variables; IS curve; New Keynesian model; panel data; monetary policy (search for similar items in EconPapers)
JEL-codes: E21 E44 E52 (search for similar items in EconPapers)
Date: 2017
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