The Credibility Problem Revisited: Thirty Years on from Kydland and Prescott

19 Pages Posted: 20 Aug 2008

See all articles by Paul Levine

Paul Levine

School of Economics, University of Surrey

Joseph Pearlman

London Metropolitan University - Department of Economics, Finance and International Business (EFIB)

Abstract

Macroeconomics research has changed profoundly since the Kydland-Prescott seminal paper. In order to address the Lucas Critique, modeling is now based on micro-foundations treating agents as rational utility optimizers. Bayesian estimation has produced models which are more data-consistent than those based simply on calibration. With micro-foundations and new linear-quadratic techniques, normative policy based on welfare analysis is now possible. In the open economy, policy involves a game with policymakers and private institutions or private individuals as players. This paper attempts to reassess the Kydland-Prescott contribution in the light of these developments.

Suggested Citation

Levine, Paul L. and Pearlman, Joseph G., The Credibility Problem Revisited: Thirty Years on from Kydland and Prescott. Review of International Economics, Vol. 16, Issue 4, pp. 728-746, September 2008. Available at SSRN: https://ssrn.com/abstract=1239374 or http://dx.doi.org/10.1111/j.1467-9396.2008.00772.x

Paul L. Levine (Contact Author)

School of Economics, University of Surrey ( email )

Guildford
Surrey GU2 7XH
United Kingdom
+44 1483 259 380 Ext. 2773 (Phone)
+44 1483 259 548 (Fax)

Joseph G. Pearlman

London Metropolitan University - Department of Economics, Finance and International Business (EFIB) ( email )

Economics Subject Group, LMBS
London EC2M 6SQ, EC2M 6SQ
United Kingdom

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