Can New Keynesian Models Survive the Barro-King Curse?

Guido Ascari, Louis Phaneuf and Eric Sims ()
Additional contact information
Louis Phaneuf: University of Quebec in Montreal

No 20-05, Working Papers from Chair in macroeconomics and forecasting, University of Quebec in Montreal's School of Management

Abstract: Barro and King (1984) conjecture that shocks other than those to total factor productivity will have difficulty generating key business cycle comovements between output, consumption, investment and hours worked. Recent years have seen the emergence of a class of DSGE models in which aggregate fluctuations are driven by several shocks, making them particularly vulnerable to the "Barro-King Curse". These models emphasize monopolistically competitive goods and labor markets, nominal rigidities and real frictions. We show that the standard medium-scale New Keynesian model is vulnerable to the curse predicting anomalous contemporaneous correlations between key variables and wrong profiles of cross-correlations. With the realistic additions of roundabout production and real per capita output growth, the New Keynesian model can survive the curse despite standard preferences, a cost of capital utilization measured as foregone consumption and positive trend inflation.

Keywords: Monopolistic competition; Nominal wage and price rigidities; Firms networking; Trend output growth; Trend inflation; Business cycle comovements. (search for similar items in EconPapers)
JEL-codes: E31 E32 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2020-05
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://chairemacro.esg.uqam.ca/wp-content/uploads/sites/146/Barro-King_WP.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bbh:wpaper:20-05

Access Statistics for this paper

More papers in Working Papers from Chair in macroeconomics and forecasting, University of Quebec in Montreal's School of Management Contact information at EDIRC.
Bibliographic data for series maintained by Dalibor Stevanovic and Alain Guay ().