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Unemployment in an Estimated New Keynesian Model

Jordi Gali (), Frank Smets and Raf Wouters ()

No 106, NBP Working Papers from Narodowy Bank Polski, Economic Research Department

Abstract: We reformulate the Smets-Wouters (2007) framework by embedding 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 identification 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)
New Economics Papers: this item is included in nep-cba, nep-lab and nep-mac
Date: 2012
Note: Prepared for the NBER Macroeconomics Annual 2011 Conference, held in Cambridge, MA on April 8-9,2011.
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Journal Article: 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 (2011) Downloads
Working Paper: Unemployment in an Estimated New Keynesian Model (2010) Downloads
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