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American Economic Journal: Macroeconomics: Vol. 1 No. 1 (January 2009)

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New Keynesian Models: Not Yet Useful for Policy Analysis

Article Citation

Chari, V. V., Patrick J. Kehoe, and Ellen R. McGrattan. 2009. "New Keynesian Models: Not Yet Useful for Policy Analysis." American Economic Journal: Macroeconomics, 1(1): 242-66.

DOI: 10.1257/mac.1.1.242

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. (JEL E12, E60)

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Authors

Chari, V. V. (Federal Reserve Bank of Minneapolis and U MN)
Kehoe, Patrick J. (Federal Reserve Bank of Minneapolis and U MN)
McGrattan, Ellen R. (Federal Reserve Bank of Minneapolis and U MN)

JEL Classifications

E12: General Aggregative Models: Keynes; Keynesian; Post-Keynesian
E60: Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

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