Abstract

http://ssrn.com/abstract=1260910
 
 

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New Keynesian Models: Not Yet Useful for Policy Analysis


Varadarajan V. Chari


University of Minnesota - Twin Cities - Department of Economics; Federal Reserve Bank of Minneapolis; National Bureau of Economic Research (NBER)

Patrick J. Kehoe


Federal Reserve Bank of Minneapolis - Research Department; University of Minnesota - Twin Cities - Department of Economics; National Bureau of Economic Research (NBER)

Ellen R. McGrattan


Federal Reserve Bank of Minneapolis - Research Department; University of Minnesota - Twin Cities; National Bureau of Economic Research (NBER)

August 2008


Abstract:     
Macroeconomists have largely converged on method, model design, reduced-form shocks, and principles of policy advice. Our main disagreements today are about implementing the methodology. Some think New Keynesian models are ready to be used for quarter-to-quarter quantitative policy advice; we do not. Focusing on the state-of-the-art version of these models, we argue that some of its shocks and other features are not structural or consistent with microeconomic evidence. Since an accurate structural model is essential to reliably evaluate the effects of policies, we conclude that New Keynesian models are not yet useful for policy analysis.

Keywords: New Keynesian Models, Macroeconomic Policy

JEL Classification: E32, E58

working papers series





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Date posted: September 3, 2008  

Suggested Citation

Chari, Varadarajan V. and Kehoe, Patrick J. and McGrattan, Ellen R., New Keynesian Models: Not Yet Useful for Policy Analysis (August 2008). Available at SSRN: http://ssrn.com/abstract=1260910

Contact Information

Varadarajan V. Chari (Contact Author)
University of Minnesota - Twin Cities - Department of Economics ( email )
271 19th Avenue South
1108 Management & Economics
Minneapolis, MN 55455
United States
612-626-7151 (Phone)
Federal Reserve Bank of Minneapolis ( email )
90 Hennepin Avenue
Minneapolis, MN 55480
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Patrick J. Kehoe
Federal Reserve Bank of Minneapolis - Research Department ( email )
90 Hennepin Avenue
Minneapolis, MN 55480
United States
612-204-5525 (Phone)
612-204-5515 (Fax)
University of Minnesota - Twin Cities - Department of Economics ( email )
271 19th Avenue South
Minneapolis, MN 55455
United States
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Ellen R. McGrattan
Federal Reserve Bank of Minneapolis - Research Department ( email )
90 Hennepin Avenue
Minneapolis, MN 55480
United States
612-340-2587 (Phone)
612-340-2356 (Fax)
University of Minnesota - Twin Cities
420 Delaware St. SE
Minneapolis, MN 55455
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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