Inflation in the Great Recession and New Keynesian Models

Marco Del Negro, Marc Giannoni and Frank Schorfheide

No 20055, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: It has been argued that existing DSGE models cannot properly account for the evolution of key macroeconomic variables during and following the recent great recession. We challenge this argument by showing that a standard DSGE model with financial frictions available prior to the recent crisis successfully predicts a sharp contraction in economic activity along with a modest and protracted decline in inflation, following the rise in financial stress in 2008Q4. The model does so even though inflation remains very dependent on the evolution of economic activity and of monetary policy.

JEL-codes: C52 E31 E32 E37 (search for similar items in EconPapers)
Date: 2014-04
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
Note: EFG ME
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Citations: View citations in EconPapers (27)

Published as Marco Del Negro & Marc P. Giannoni & Frank Schorfheide, 2015. "Inflation in the Great Recession and New Keynesian Models," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(1), pages 168-96, January.

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Related works:
Journal Article: Inflation in the Great Recession and New Keynesian Models (2015)
Working Paper: Inflation in the Great Recession and New Keynesian Models (2014)
Working Paper: Inflation in the Great Recession and New Keynesian models (2013)
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