Fisher's Relation and the Term Structure: Implications for IS Curves
Christopher Malikane () and
Kalu Ojah ()
MPRA Paper from University Library of Munich, Germany
We derive the new Keynesian IS curve from the Fisher relation and the expectations theory of the term structure, without reference to household preferences. We show that, under certain conditions, parameters of the empirical new Keynesian IS curves need not be estimated but can be calibrated from observed data. We specifically show that the coefficient of relative risk aversion is the steady-state consumption-output ratio and that the interest rate effect on output can be reasonably approximated by the inverse of the average term to maturity of debt instruments. We highlight the implications of these findings for macroeconomic modelling and estimation.
Keywords: IS curve; no-arbitrage; Fisher relation; expectations theory of the term structure. (search for similar items in EconPapers)
JEL-codes: E4 E43 E44 (search for similar items in EconPapers)
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