The Empirical Relevance of Simple Forward- and Backward-looking Models: A View from a Dynamic General Equilibrium Model

Jesper Lindé

No 130, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: Recent research have provided evidence that backward-looking models fit the data well while purely forward-looking models seem to be inconsistent with data. Consequently, many recent papers in the monetary policy rule literature have used "hybrid" models, which contain both backward- and forward-looking components. In this paper, I demonstrate that a dynamic general equilibrium model with flexible prices and forward-looking properties cannot account for the empirical findings, i.e. that backward-looking behavior seems more important than forward-looking behavior, and that backward-looking models fit the data better than purely forward-looking models. The results also show that the equilibrium model cannot replicate the estimated high weight on backward-looking behavior on US data for the hybrid model.

Keywords: Monetary policy rules; New Keynesian Phillips-curves; Rational expectations IS-curves; Backward-looking models; Dynamic general equilibrium models; Lucas critique (search for similar items in EconPapers)
JEL-codes: C22 C52 E52 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2001-12-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:rbnkwp:0130

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