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New‐Keynesian Models and Monetary Policy: A Re‐examination of the Stylized Facts *
Author(s) -
Söderström Ulf,
Söderlind Paul,
Vredin Anders
Publication year - 2005
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/j.1467-9442.2005.00421.x
Subject(s) - stylized fact , economics , new keynesian economics , monetary policy , output gap , inflation (cosmology) , intuition , econometrics , preference , keynesian economics , phillips curve , macroeconomics , microeconomics , philosophy , physics , epistemology , theoretical physics
Using an empirical New‐Keynesian model with optimal discretionary monetary policy, we estimate key parameters—the central bank's preference parameters; the degree of forward‐looking behavior in the determination of inflation and output; and the variances of inflation and output shocks—to match some broad characteristics of U.S. data. The parameterization we obtain implies a small concern for output stability but a large preference for interest rate smoothing, and a small degree of forward‐looking behavior in price‐setting but a large degree of forward‐looking in the determination of output. Our methodology also allows us to carefully examine the consequences of alternative parameterizations and to provide intuition for our results.