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New Keynesian Models and the Kydland and Prescott Test

Author

Listed:
  • Juan Paez-Farrell

    (Hull University & Julian Hodge Institute of Applied Macroeconomics)

Abstract

This paper evaluates New Keynesian models using RBC methods for a number of key macroeconomic variables. Its main findings are that the NK model provides a good description of the behaviour of real variables but performs very poorly when nominal variables are considered. The latter result is puzzling, given the success of NK models in replicating impulse response function and presents a challenge for current models.

Suggested Citation

  • Juan Paez-Farrell, 2004. "New Keynesian Models and the Kydland and Prescott Test," Macroeconomics 0411003, University Library of Munich, Germany, revised 24 Nov 2004.
    • Handle: RePEc:wpa:wuwpma:0411003
    Note: Type of Document - pdf; pages: 24. This paper evaluates NK models using RBC methods and finds that they have difficulty matching the data.
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/mac/papers/0411/0411003.pdf
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    References listed on IDEAS

    as
    1. Casares, Miguel & McCallum, Bennett T., 2006. "An optimizing IS-LM framework with endogenous investment," Journal of Macroeconomics, Elsevier, vol. 28(4), pages 621-644, December.
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    4. Carl E. Walsh, 2003. "Monetary Theory and Policy, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232316, April.
    5. Long, John B, Jr & Plosser, Charles I, 1983. "Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 39-69, February.
    6. Rudd, Jeremy & Whelan, Karl, 2005. "Does Labor's Share Drive Inflation?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 297-312, April.
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    8. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    New Keynesian; Business Cycles; Inflation;
    All these keywords.

    JEL classification:

    • E - Macroeconomics and Monetary Economics

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