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Unemployment in an Estimated New Keynesian Model

Jordi Galí, Frank Smets and Raf Wouters ()

No 541, Working Papers from Barcelona Graduate School of Economics

Abstract: Revised May 2011 We develop a reformulated version of the Smets-Wouters (2007) framework that embeds the theory of unemployment proposed in Galí (2011a,b). We estimate the resulting model using postwar U.S. data, while treating the unemployment rate as an additional observable variable. Our approach overcomes the lack of identifification of wage markup and labor supply shocks highlighted by Chari, Kehoe and McGrattan (2008) in their criticism of New Keynesian models, and allows us to estimate a "correct" measure of the output gap. In addition, the estimated model can be used to analyze the sources of unemployment fluctuations.

Keywords: Nominal rigidities; unemployment fluctuations; Phillips curve; wage markups shocks; output gap (search for similar items in EconPapers)
JEL-codes: D58 E24 E31 E32 (search for similar items in EconPapers)
Date: 2011-03
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Related works:
Journal Article: Unemployment in an Estimated New Keynesian Model (2012) Downloads
Working Paper: Unemployment in an Estimated New Keynesian Model (2012) Downloads
Chapter: Unemployment in an Estimated New Keynesian Model (2011) Downloads
Working Paper: Unemployment in an Estimated New Keynesian Model (2011) Downloads
Working Paper: Unemployment in an Estimated New Keynesian Model (2011) Downloads
Working Paper: Unemployment in an Estimated New Keynesian model (2011) Downloads
Working Paper: Unemployment in an estimated new Keynesian model (2011) Downloads
Working Paper: Unemployment in an Estimated New Keynesian Model (2010) Downloads
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