New Keynesian models: not yet useful for policy analysis

2008

220 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/68239cece93ddbefd64cdd506e0e86ba3559bd9e

Citations in the corpus

• A new comparative approach to macroeconomic modeling and policy analysis (2012, unknown): “In addition, this category includes several recently developed models that address some of the criticisms raised in the introduction, for example DSGE models with housing market dynamics (Iacoviello (2005)) and credit market imperfections (De Graeve (2008), Christensen and Dib (2008)) or the model w”
• Slow Recoveries: A Structural Interpretation (2012, unknown): “That feature, made possible by reformulating the wage equation in terms of the (observable) unemployment rate, allows us to overcome the key identification problem raised by Chari et al. (2009) in their critique of New Keynesian models.”
• New Keynesian versus Old Keynesian Government Spending Multipliers (2010, unknown): “But as Chari et al. (2009) have emphasized the models go further in the Keynesian direction by assuming ‘‘the backward indexation of prices’’ in ‘‘a mechanical way’’ which amplifies Keynesian aggregate demand effects of policy. It is well understood that the standard real business cycle model predic”
• The scientific foundation of dynamic stochastic general equilibrium (DSGE) models (2010, unknown): “The suspicion exists that the heuristics may drive most of the dynamics in the DSGE models (see Chari et al. 2009 ).”
• Keynesian Government Spending Multipliers and Spillovers in the Euro Area (2011, unknown): “But as Chari, Kehoe, and McGrattan (2009) have emphasized the models go further in the Keynesian direction by assuming "the backward indexation of prices" in "a mechanical way" which amplifies Keynesian aggregate demand effects of policy.”
• Investment shocks and business cycles (2010, unknown): “intellectually unappealing (see Chari, Kehoe, and McGrattan (2008) and especially Shimer”
• RETHINKING MACROECONOMICS: WHAT FAILED, AND HOW TO REPAIR IT (2011, unknown): “This is a point of agreement among both the advocates of the New Keynesian DSGE models (Woodford 2009) and its RBC critics (Chari et al. 2009). Early versions of NK DSGE models did not even model unemployment. As Blanchard and Galı́ (2010) pointed out: “Standard versions of NK paradigm do not genera”
• Animal spirits and monetary policy (2008, unknown): “” American Economic Review, 96 (2), 164-169.. Milani, F., (2007a), Learning and Time-Varying Macroeconomic Volatility, mimeo, University of California, Irvine. Milani, F., (2007b), Expectations, Learning and Macroeconomic Persistence, Journal of Monetary Economics, 54, 2065-2082. Nelson, E., (1998),”
• On the Structural Interpretation of the Smets-Wouters 'Risk Premium' Shock (2015, unknown): “Chari et al. (2009) assert a structural relationship between flight-to-quality and monetary policy.”
• New Consensus Macroeconomics: A Critical Appraisal (2009, unknown): “Chari et al. (2008) argue that the NCM models are not useful for policy analysis.”
• Forward Guidance and Macroeconomic Outcomes since the Financial Crisis (2016, unknown): “This variable helps us identify the 29This forms a major component of Chari, Kehoe, and McGrattan (2009)’s critique of NK models. inflation drift π∗t in (11).”