This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Testing for Indeterminacy: An Application to U.S. Monetary Policy

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Thomas A. Lubik
Frank Schorfheide

Additional information is available for the following registered author(s):

Abstract

This paper considers a prototypical New Keynesian model, in which the equilibrium is undetermined if monetary policy is "passive." The likelihood-based estimation of dynamic equilibrium models is extended to allow for indeterminacies and sunspot fluctuations. We construct posterior weights for the determinacy and indeterminacy region of the parameter space and estimates for the propagation of fundamental and sunspot shocks. According to the estimated model, U.S. monetary policy post-1982 is consistent with determinacy, whereas the pre-Volcker policy is not. We find that before 1979 indeterminacy substantially altered the propagation of shocks.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://hdl.handle.net/10.1257/000282804322970760
File Format: text/html
File Function:
Download Restriction: no
File URL: http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=1&article=10&issue_date=March2004
File Format: application/pdf
File Function:
Download Restriction: Access to full text is restricted to AEA members.

Publisher Info
Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 94 (2004)
Issue (Month): 1 (March)
Pages: 190-217
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:aea:aecrev:v:94:y:2004:i:1:p:190-217

Contact details of provider:
Email:
Web page: http://www.aeaweb.org/aer/
More information through EDIRC

Order Information:
Web: http://www.aeaweb.org/subscribe.html

For technical questions regarding this item, or to correct its listing, contact: (Christopher F. Baum).

Related research
Keywords:

Other versions of this item:

This item is featured on the following reading lists:
  1. Top 1‰ items by number of citations discounted by age
  2. Top 1‰ items by number of citations weighted by simple impact factors and discounted by age
  3. Top 1‰ items by number of citations weighted by recursive impact factors and discounted by age
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Ireland, Peter N., 2001. "Sticky-price models of the business cycle: Specification and stability," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 3-18, February. [Downloadable!] (restricted)
    Other versions:
  2. Thomas A Lubik & Frank Schorfheide, 2001. "Computing Sunspots in Linear Rational Expectations Models," Economics Working Paper Archive 456, The Johns Hopkins University,Department of Economics, revised Jun 2002. [Downloadable!]
    Other versions:
  3. James Bullard & Kaushik Mitra, 2002. "Learning about monetary policy rules," Working Papers 2000-001, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  4. John Geweke, 1998. "Using simulation methods for Bayesian econometric models: inference, development, and communication," Staff Report 249, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  5. RUGE-MURCIA, Francisco J., 2003. "Methods to Estimate Dynamic Stochastic General Equilibrium Models," Cahiers de recherche 2003-23, Universite de Montreal, Departement de sciences economiques. [Downloadable!]
    Other versions:
  6. Thomas Sargent & Noah Williams & Tao Zha, 2006. "The Conquest of South American Inflation," NBER Working Papers 12606, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November. [Downloadable!] (restricted)
    Other versions:
  8. Jeffrey C. Fuhrer, 2000. "Habit Formation in Consumption and Its Implications for Monetary-Policy Models," American Economic Review, American Economic Association, vol. 90(3), pages 367-390, June. [Downloadable!] (restricted)
  9. Jordi Gali & Mark Gertler, 2000. "Inflation Dynamics: A Structural Econometric Analysis," NBER Working Papers 7551, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  10. Salyer, Kevin D. & Sheffrin, Steven M., 1998. "Spotting sunspots: Some evidence in support of models with self-fulfilling prophecies," Journal of Monetary Economics, Elsevier, vol. 42(3), pages 511-523, October. [Downloadable!] (restricted)
  11. Sims, Christopher A, 2002. "Solving Linear Rational Expectations Models," Computational Economics, Springer, vol. 20(1-2), pages 1-20, October. [Downloadable!]
    Other versions:
  12. Roger E.A. Farmer & Jang Ting Guo, 1992. "Real Business Cycles and the Animal Spirits Hypothesis," UCLA Economics Working Papers 680, UCLA Department of Economics. [Downloadable!]
    Other versions:
  13. Stephanie Schmitt-Grohe, 2000. "Endogenous Business Cycles and the Dynamics of Output, Hours, and Consumption," American Economic Review, American Economic Association, vol. 90(5), pages 1136-1159, December. [Downloadable!] (restricted)
    Other versions:
  14. Jovanovic, Boyan, 1988. "Observable Implications Of Models With Multiple Equilibria," Working Papers 88-20, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
    Other versions:
  15. Rabanal, Pau & Rubio-Ramirez, Juan F., 2005. "Comparing New Keynesian models of the business cycle: A Bayesian approach," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1151-1166, September. [Downloadable!] (restricted)
  16. Jae-Young Kim, 1998. "Large Sample Properties of Posterior Densities, Bayesian Information Criterion and the Likelihood Principle in Nonstationary Time Series Models," Econometrica, Econometric Society, vol. 66(2), pages 359-380, March.
  17. Dupor, Bill, 2001. "Investment and Interest Rate Policy," Journal of Economic Theory, Elsevier, vol. 98(1), pages 85-113, May. [Downloadable!] (restricted)
  18. Phillips, Peter C B, 1996. "Econometric Model Determination," Econometrica, Econometric Society, vol. 64(4), pages 763-812, July. [Downloadable!] (restricted)
  19. Bennett T. McCallum, 1983. "On Non-Uniqueness in Rational Expectations Models: An Attempt at Perspective," NBER Working Papers 0684, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  20. Sbordone, Argia M., 2002. "Prices and unit labor costs: a new test of price stickiness," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 265-292, March. [Downloadable!] (restricted)
    Other versions:
  21. Pau Rabanal & Juan F. Rubio-Ramírez, 2001. "Nominal versus real wage rigidities: A Bayesian approach," Working Paper 2001-22, Federal Reserve Bank of Atlanta. [Downloadable!]
  22. Lawrence J. Christiano & Sharon G. Harrison, 1996. "Chaos, Sunspots, and Automatic Stabilizers," NBER Working Papers 5703, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  23. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules And Macroeconomic Stability: Evidence And Some Theory," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 147-180, February. [Downloadable!] (restricted)
    Other versions:
  24. Frank Schorfheide, 2000. "Loss function-based evaluation of DSGE models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(6), pages 645-670. [Downloadable!]
  25. Russell W. Cooper, 2002. "Estimation and Identification of Structural Parameters in the Presence of Multiple Equilibria," NBER Working Papers 8941, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  26. Poirier, Dale J., 1998. "Revising Beliefs In Nonidentified Models," Econometric Theory, Cambridge University Press, vol. 14(04), pages 483-509, August. [Downloadable!]
  27. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July. [Downloadable!] (restricted)
  28. Thomas Lubik & Massimiliano Marzo, 2003. "An Inventory of Simple Monetary Policy Rules in a New Keynesian Macroeconomic Model," Economics Working Paper Archive 500, The Johns Hopkins University,Department of Economics. [Downloadable!]
    Other versions:
  29. Lubik, Thomas A. & Schorfheide, Frank, 2003. "Computing sunspot equilibria in linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 28(2), pages 273-285, November. [Downloadable!] (restricted)
  30. Orphanides, Athanasios, 2004. "Monetary Policy Rules, Macroeconomic Stability, and Inflation: A View from the Trenches," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(2), pages 151-75, April.
    Other versions:
  31. Robert G. King, 2000. "The new IS-LM model : language, logic, and limits," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 45-103. [Downloadable!]
  32. Kim, Jinill, 2000. "Constructing and estimating a realistic optimizing model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 329-359, April. [Downloadable!] (restricted)
  33. Roger E.A. Farmer, 1994. "The Econometrics of Indeterminacy: An Applied Study," UCLA Economics Working Papers 720, UCLA Department of Economics. [Downloadable!]
    Other versions:
  34. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc. [Downloadable!]
  35. Imrohoroglu, Selahattin, 1993. "Testing for sunspot equilibria in the German hyperinflation," Journal of Economic Dynamics and Control, Elsevier, vol. 17(1-2), pages 289-317. [Downloadable!] (restricted)
  36. Jesús Fernández-Villaverde & Juan F. Rubio, 2003. "Comparing Dynamic Equilibrium Economies to Data," Levine's Bibliography 506439000000000309, UCLA Department of Economics. [Downloadable!]
    Other versions:
  37. Stephanie Schmitt-Grohe, 1995. "Comparing four models of aggregate fluctuations due to self-fulfilling expectations," Finance and Economics Discussion Series 95-17, Board of Governors of the Federal Reserve System (U.S.).
    Other versions:
  38. Perli, Roberto, 1998. "Indeterminacy, home production, and the business cycle: A calibrated analysis," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 105-125, February. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.
Statistics
Access and download statistics

Did you know? All full texts are decentralized with the publishers, none reside on this server, thus making it possible to offer this service for free to all parties.

This page was last updated on 2009-10-31.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.