The new Keynesian monetary model: Does it show the comovement between GDP and inflation in the U.S.?

Ramón, Mari­a-Dolores,; Vázquez, Jesús

The new Keynesian monetary model: Does it show the comovement between GDP and inflation in the U.S.?

Maria-Dolores, Ramón and Jesús Vázquez
Authors registered in the RePEc Author Service: Ramón Maria-Dolores

Journal of Economic Dynamics and Control, 2008, vol. 32, issue 5, 1466-1488

Abstract: This paper analyzes the performance of alternative versions of the new Keynesian monetary (NKM) model in replicating the comovement observed between output and inflation. Following Den Haan [2000. The comovement between output and prices. Journal of Monetary Economics 46, 3-30], we analyze comovement by computing the correlations of VAR forecast errors of the two variables at different forecast horizons. The empirical correlation is negative and marginally significant for the one-ahead forecast horizon, but the correlations are non-significant for the other forecast horizons studied. In contrast, a simple NKM model under a standard parameterization provides a high and significant negative comovement at all forecast horizons. However, a generalized version including habit formation and a forward-looking Taylor rule is able to mimic the observed weak comovement at medium- and long-term forecast horizons.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:32:y:2008:i:5:p:1466-1488

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