 Identifying Modern Macro Equations with Old Shocks*Régis Barnichon and Geert Mesters The Quarterly Journal of Economics, 2020, vol. 135, issue 4, 2255-2298 Abstract: Despite decades of research, the consistent estimation of structural forward-looking macroeconomic equations remains a formidable empirical challenge because of pervasive endogeneity issues. Prominent cases—the estimation of Phillips curves, Euler equations, or monetary policy rules—have typically relied on using predetermined variables as instruments, with mixed success. In this work, we propose a new approach that consists in using sequences of independently identified structural shocks as instrumental variables. Our approach is robust to weak instruments and is valid regardless of the shocks’ variance contribution. We estimate a Phillips curve using monetary shocks as instruments and find that conventional methods substantially underestimate the slope of the Phillips curve. Date: 2020 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:oup:qjecon:v:135:y:2020:i:4:p:2255-2298. Ordering information: This journal article can be ordered from Access Statistics for this article The Quarterly Journal of Economics is currently edited by Robert J. Barro, Lawrence F. Katz, Nathan Nunn, Andrei Shleifer and Stefanie Stantcheva More articles in The Quarterly Journal of Economics from President and Fellows of Harvard College |
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