Erdemlioglu, Deniz M and Xiao, Wei (2008): Indeterminate Equilibria in New Keynesian DSGE Model: An Application to the US Great Moderation.
Download (146kB) | Preview
This paper tests “Bad Policy” Hypothesis which refers to the Great Moderation in the US. We examine this hypothesis by simulating model based impulse response functions for the both pre-Volcker period and post 1982 period. Deriving and simulating standard New Keynesian DSGE Model explicitly, we find that while post 1982 policy i.e. active policy, is consistent with the unique stable equilibrium characteristics; pre-Volcker or passive monetary policy generates equilibrium indeterminacy. Moreover, our simulated-impulse response functions show that the response of inflation and the output gap in post 82 period is weaker than the macroeconomic responses of the pre-Volcker period.
|Item Type:||MPRA Paper|
|Original Title:||Indeterminate Equilibria in New Keynesian DSGE Model: An Application to the US Great Moderation|
|Keywords:||The Great Moderation, Indeterminacy, Determinate Equilibrium, New Keynesian DSGE Model, Monetary Policy, Sunspot shocks|
|Subjects:||E - Macroeconomics and Monetary Economics > E0 - General
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
|Depositing User:||Deniz Erdemlioglu|
|Date Deposited:||09. Sep 2008 00:40|
|Last Modified:||11. Feb 2013 21:05|
 Benati, L., Surico, P. (2007), “Vector Autoregression Analysis and the Great Moderation”, External MPC Unit Discussion Paper No. 18, (October 2007), pp. 1-31.
 Cecchetti, Stephen G., et al. (2007). “Understanding the Evolving Inflation Process”, US Monetary Policy Forum Paper, (February 2007), pp. 1-74.
 Cochrane, John H. (2001). “Solving Real Business Cycles Models by Solving Systems of First Order Conditions”, Lecture Notes, Graduate School of Business, University of Chicago, pp. 1-17.
 Gali, J., (2007), “Lectures on Monetary Policy, Inflation and the Business Cycle”, Lecture Notes, (February 2007), chapter-III.
 Gambetti, L., Pappa, E., Canova, F. (2006). “The Structural Dynamics of US Output and Inflation: What Explains the Changes?”, Journal of Economic Literature, (September 2006), pp. 1-24.
 Gambetti, L., Gali, J. (2007). “On the Source of the Great Moderation”, JEL Code: E32, (June 2007), pp. 1-59.
 Gambetti, L., Canova, F. (2008). “Do Expectations Matter? The Great Moderation Revisited”, Journal of Economic Literature, (April 2008), pp. 1-43.
 Lubik, T., Schorfheide, F. (2003). “Testing for Indeterminacy: An Application to US Monetary Policy”, American Economic Reviw, (June 2003), pp. 1-51.
 Milani, F. (2005), “Learning, Monetary Policy Rules and Macroeconomic Stability”, JEDC, (July 14 2005), pp. 1-42.
 Orphanides, A. (2001). “Monetary Policy Rules, Macroeconomic Stability and Inflation: A view from the Trenches”, JMCB, Board of Governers of the Federal Reserve System, (December 2001), pp.1-34.
 Xiao, W. (2008). “Review of VAR Analysis”, Lecture Notes, State University of New York –Binghamton, pp. 1-7.
 Xiao, W. (2008). “Computing Dynamic General Equilibrium Models”, Lecture Notes, State University of New York - Binghamton, pp. 1-4.