Antonio, Paradiso and Kumar, Saten and Rao, B Bhaskara (2011): A New Keynesian IS Curve for Australia: Is it Forward Looking or Backward Looking?
Download (254kB) | Preview
This paper estimates the forward looking, backward looking and an extended version of the New Keynesian IS curve for Australia. The validity of these models is investigated by imposing the constraint on real rate of interest and as well as when the constraint is relaxed. Two measures of output gap viz. GAP1 (constructed using the unobserved components approach) and GAP2 (constructed using a quadratic trend) are utilized. Our results suggest that the baseline backward looking and forward looking models are overwhelmingly rejected by the data. Evidence strongly supports for the extended backward looking model (with GAP2) being relevant for monetary policy analysis.
|Item Type:||MPRA Paper|
|Original Title:||A New Keynesian IS Curve for Australia: Is it Forward Looking or Backward Looking?|
|Keywords:||New Keynesian IS curve; Backward looking; Forward looking; Australia|
|Subjects:||C - Mathematical and Quantitative Methods > C0 - General > C02 - Mathematical Methods
C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C12 - Hypothesis Testing: General
|Depositing User:||Saten Kumar|
|Date Deposited:||09. Dec 2011 14:18|
|Last Modified:||24. Sep 2015 15:42|
Andrews, D. W. K. (1993) Tests for parameter instability and structural change with unknown change point, Econometrica, 61, 821-856.
Angeloni, I. and Ehrmann, M. (2007) Euro area inflation differentials, The B.E. Journal of Macroeconomics, 7, 1.
Ball, L. (1998) Policy rules for open economies, NBER Working Paper No. 6760.
Davidson, J., Hendry, D., Srba, F. and Yeo, S. (1978) Econometric modeling of the aggregate time-series relationship between consumers’ expenditure and income in the United Kingdom, The Economic Journal, 88, 661-692.
di Giovanni, J., McCrary, J. and von Watcher, T. (2009) Following Germany’s lead: using international monetary linkages to estimate the effect of monetary policy on the economy, The Review of Economic and Statistics, 91, 315-331.
Estrella, A. and Fuhrer, J. C. (2002) Dynamic inconsistencies: counterfactual implications of a class of rational expectations models, The American Economic Review, 92, 1013-1028.
Fuhrer, J. C. (2000) Habit formation in consumption and its implications for monetary policy models, The American Economic Review, 90, 367-390.
Fuhrer, J. C. and Rudebusch, G. (2004) Estimating the Euler equation for output, Journal of Monetary Economics, 51, 1133-1153.
Goodhart, C. and Hofmann, B. (2005) The IS curve and the transmission of monetary policy: Is there a puzzle? Applied Economics, 37, 29-36.
Hafer, R.W., Haslag, J. and Jones, G. (2007) On money and output: is money redundant, Journal of Monetary Economics, 54, 945-954.
Hafer, R.W. and Jones, G. (2008) Dynamic IS curves with and without money: an international comparison, Journal of International Money and Finance, 27, 609-616.
Hansen, L. (1982). Large sample properties of generalized method of moments estimators, Econometrica, 50, 1029-54.
Harvey, A. C. (1989) Forecasting, Structural Time Series Models and the Kalman Filter, Cambridge University Press, Cambridge.
Harvey, A. C. (2011) Modelling the Phillips curve with unobserved components, Applied Financial Economics, 21, 7-17.
Lindé, J. (2001) The empirical relevance of simple forward- and backward-looking models: A view from a dynamic general equilibrium model, Sveriges Riksbank Working Paper No. 130.
Nelson, E. (2001) What does the UKs monetary policy and inflation experience tell us about the transmission mechanism? CEPR Working Paper No. 3047.
Nelson, E. (2002) Direct effects of base monetary on aggregate demand: theory and evidence, Journal of Monetary Economics, 49, 687-708.
Peersman, G. and Smets, F. (1999) The Taylor rule: a useful monetary policy benchmark for the euro area? International Finance, 1, 85-116.
Quandt, R. E. (1960) Tests of the hypothesis that a linear regression system obeys two separate regimes, Journal of the American Statistical Association, 55, 324-330.
Ross, K. and Ubide, A. (2001) Mind the gap: what is the best measure of slack in the Euro Area? IMF Working Paper No. 203.
Rudebusch, G. (2002) Assessing nominal income rules for monetary policy with model and data uncertainty, The Economic Journal, 112, 401-432.
Rudebusch, G. and Svensson, L. (1999) Policy rules for inflation targeting, in Monetary Policy Rules (ed.) J. Taylor, University of Chicago Press for NBER.
Stock, J. H. and Watson, M. W. (2001) Vector Autoregressions, Journal of Economic Perspectives, 15, 101-115.
Stracca, L. (2010) Is the New Keynesian IS curve structural? European Central Bank Working Paper Series No. 1236.
Svensson, L. E. O. (2000) Open-economy inflation targeting, Journal of International Economics, 50, 155-183.
Watson, M. (1994) Vector Autoregression and Cointegration, in R.F. Engle and D. L. McFadded (Eds.), The Handbook of Econometrics, vol. 4, New York, Elsevier.