Comparing New Keynesian Models of the Business Cycle: A Bayesian Approach
Juan Francisco Rubio-Ramirez
Duke University - Department of Economics; Federal Reserve Bank of Atlanta - Research Department
FRB of Atlanta Working Paper No. 2001-22b
This paper estimates and compares four versions of the New Keynesian model with nominal rigidities using a Bayesian approach. Our empirical results are as follows. First, the authors find that adding price indexation improves the fit of Calvo's (1983) model. Second, models with both staggered price and staggered wage contracts dominate models with only price rigidities. Third, introducing wage indexation does not significantly improve the fit. Fourth, all model estimates suggest a high degree of price stickiness. Fifth, the estimates of labor supply elasticity are higher in models with both staggered price and staggered wage contracts. And finally, the estimated inflation parameters of the Taylor rule are stable across models.
Number of Pages in PDF File: 36
Keywords: nominal rigidities, indexation, Bayesian econometrics, model comparison
JEL Classification: C11, C15, E31, E32working papers series
Date posted: December 6, 2001
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