Munich Personal RePEc Archive

Indeterminate Equilibria in New Keynesian DSGE Model: An Application to the US Great Moderation

Erdemlioglu, Deniz M and Xiao, Wei (2008): Indeterminate Equilibria in New Keynesian DSGE Model: An Application to the US Great Moderation.

[img]
Preview
PDF
MPRA_paper_10322.pdf

Download (143Kb) | Preview

Abstract

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.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.