Can a Calibrated New-Keynesian Model of Monetary Policy Fit the Facts?

Ulf Söderström (), Paul Söderlind and Anders Vredin ()

No 140, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: Using an empirical New-Keynesian model with optimal discretionary monetary policy, we calibrate key parameters--the central bank's preference parameters; the degree of forward-looking behavior in the determination of inflation and output; and the variances of inflation and output shocks--to match some broad characteristics of U.S. data. Our preferred parameterizations all imply a small concern for output stability but a large preference for interest rate smoothing, and a small degree of forward-looking behavior in price-setting but a large degree of forward-looking in the determination of output. We provide some intuition for these results and discuss their consequences for practical monetary policy analysis.

Keywords: Interest rate smoothing; central bank objectives; forward-looking behavior (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2002-09-01
New Economics Papers: this item is included in nep-cba and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published in Scandinavian Journal of Economics, 2005, pages 521-546.

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