On the Indeterminacy of New-Keynesian Economics
By A. Beyer, Roger E. A. Farmer. Social Science Research Network, 2004
119 citations recorded by the source corpus.
We study identification in a class of three-equation monetary models. We argue that these models are typically not identified. For any given exactly identified model, we provide an algorithm that generates a class of equivalent models that have the same reduced form. We use our algorithm to provide four examples of the consequences of lack of identification. In our first two examples we show that it is not possible to tell whether the policy rule or the Phillips curve is forward or backward looking. In example 3 we establish an equivalence between a class of models proposed by Benhabib and Farmer and the standard new-Keynesian model. This result is disturbing since equilibria in the Benhabib-Farmer model are typically indeterminate for a class of policy rules that generate determinate outcomes in the new-Keynesian model. In example 4, we show that there is an equivalence between determinate and indeterminate models even if one knows the structural equations of the model
Subfields: Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/8dc7fda373685faae5b169277cdd2ff262c5063b
How researchers see this paper
The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.
In Economics and Econometrics
- Alejandro Justiniano
- Bruce Preston
- Andrea Roventini
- Giovanni Dosi
- Thomas A. Lubik
- Frank Schorfheide
- Francesco Bianchi
- Nikolay Iskrev
Citations in the corpus
- More is different ... and complex! the case for agent-based macroeconomics (2019, background): “See also Beyer and Farmer (2004) and the discussion in Romer (2016).”
- Bayesian Analysis of DSGE Models (2006, unknown): “Lack of identification is documented in papers by Beyer and Farmer (2004) and Canova and Sala (2005). The former paper provides an algorithm to construct families of observationally equivalent linear rational expectations models, whereas the latter paper compares the informativeness of different est”
- A Bayesian Look at New Open Economy Macroeconomics (2005, background): “This point has been emphasized by Sims (1980), and in recent years in the context of indeterminacy by Lubik and Schorfheide (2004) and Beyer and Farmer (2004).”
- Macroeconomic Policy in DSGE and Agent-Based Models (2012, unknown): “12See also Beyer and Farmer (2004).”
- Monetary policy and uncertainty in an empirical small open-economy model (2010, background): “More generally, Beyer and Farmer (2005), Fukac, Pagan, and Pavlov (2006), Canova and Sala (2005), Cochrane (2007) and Iskrev (2007) explore sources of identi cation problems and their implications for inference and speculate on its consequences for policy evaluation.”
- Local identification in DSGE models (2010, background): “Examples of unidentified DSGE models can be found in Kim (2003), Beyer and Farmer (2004) and Cochrane (2007).”
- Back to Square One: Identification Issues in DSGE Models (2009, unknown): “Consider the following three equations model: yt = a1Etyt+1 + a2(it −Etπt+1) + c1 + v1t (4) πt = a3Etπt+1 + a4yt + c2 + v2t (5) it = a5Etπt+1 + c3 + v3t (6) where yt is the output gap, πt the inflation rate, it the nominal interest rate and c1, c2, c3 are constants.”