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The mechanics of a reasonably fitted quarterly New Keynesian macro model

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  • Mayer, Eric

Abstract

The last years have witnessed a sharp increase of interest in monetary policy rules (see Taylor [1999]). This normative branch of monetary policy tries to evaluate the performance of alternative monetary policy rules in terms of associated monetary policy outcomes. Nevertheless this exercise is crucially based on the assumption that key parameters of the model are realistically specified. This holds in particular true for the preference vector of the central bank which trades off the individual goal variables of monetary policy and the degree of forward lookingness in the Phillips curve and the IS equation. Based on matching moments and the implied autocorrelations and cross correlations we present evidence for the USA covering the term of Allan Greenspan (1987:4- 2002:2) that hybrid specifications of the Phillips curve and the IS-curve are characterized by approximately 60% of backward looking economic agents. The predominant goal of monetary policy is price stability and financial market stability. Output gap stabilizationonly seems to play a minor role as an independent goal for the conduct of monetary policy.

Suggested Citation

  • Mayer, Eric, 2003. "The mechanics of a reasonably fitted quarterly New Keynesian macro model," W.E.P. - Würzburg Economic Papers 41, University of Würzburg, Department of Economics.
    • Handle: RePEc:zbw:wuewep:41
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    Cited by:

    1. Castelnuovo Efrem, 2006. "The Fed's Preference for Policy Rate Smoothing: Overestimation Due to Misspecification?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(2), pages 1-22, August.
    2. Lukas Vogel & Werner Roeger & Bernhard Herz, 2006. "Optimal Simple Rules for Fiscal Policy in a Monetary Union," Working Papers 021, Bavarian Graduate Program in Economics (BGPE).
    3. Bofinger, Peter & Mayer, Eric, 2004. "The Stability and Growth Pact Time to Rebuild!," W.E.P. - Würzburg Economic Papers 56, University of Würzburg, Department of Economics.
    4. Siok Kun, Sek, 2009. "The impacts of economic structures on the performance of simple policy rules in a small open economy," MPRA Paper 25065, University Library of Munich, Germany.

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    More about this item

    Keywords

    New Keyenesian Macro Model; hybrid Phillips curve; hybrid IS curve; forward looking behaviour; rule-of-thumb behaviour; calibration;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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