On the indeterminacy of new-Keynesian economics
Andreas Beyer () and
Roger Farmer
No 323, Working Paper Series from European Central Bank
Abstract:
We study identiÞcation in a class of three-equation monetary models. We argue that these models are typically not identiÞed. For any given exactly identiÞed model, we provide an algorithm that generates a class of equivalent models that have the same reduced form. We use our algorithm to provide four examples of the consequences of lack of identiÞcation. In our Þrst two examples we show that it is not possible to tell whether the policy rule or the Phillips curve is forward or backward looking. In example 3 we establish an equivalence between a class of models proposed by Benhabib and Farmer [1] and the standard new-Keynesian model. This result is disturbing since equilibria in the Benhabib-Farmer model are typically indeterminate for a class of policy rules that generate determinate outcomes in the new-Keynesian model. In example 4, we show that there is an equivalence between determinate and indeterminate models even if one knows the structural equations of the model. JEL Classification: C39, C62, D51, E52, E58
Keywords: IdentiÞcation; indeterminacy; new-Keynesian model; transparency (search for similar items in EconPapers)
Date: 2004-03
Note: 336354
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (63)
Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp323.pdf (application/pdf)
Related works:
Working Paper: On the Indeterminacy of New Keynesian Economics (2004) 
Working Paper: On the Indeterminacy of New-Keynesian Economics (2004) 
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:ecb:ecbwps:2004323
Access Statistics for this paper
More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().