Unemployment in an estimated new Keynesian model

Jordi Galí, Frank Smets and Raf Wouters

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

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)
Date: 2011-03, Revised 2011-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (223)

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Related works:
Working Paper: Unemployment in an Estimated New Keynesian Model (2015)
Journal Article: Unemployment in an Estimated New Keynesian Model (2012)
Working Paper: Unemployment in an Estimated New Keynesian Model (2012)
Chapter: Unemployment in an Estimated New Keynesian Model (2011)
Working Paper: Unemployment in an Estimated New Keynesian Model (2011)
Working Paper: Unemployment in an Estimated New Keynesian Model (2011)
Working Paper: Unemployment in an Estimated New Keynesian model (2011)
Working Paper: Unemployment in an Estimated New Keynesian Model (2010)
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