Comparing New Keynesian Models of the Business Cycle: A Bayesian Approach

By Pau Rabanal, Juan F. Rubio-Ramirez. 2005

412 citations recorded by the source corpus.

This paper estimates and compares four versions of the New Keynesian model with nominal rigidities using a Bayesian approach. Our empirical results are as follows. First, the authors find that adding price indexation improves the fit of Calvo's (1983) model. Second, models with both staggered price and staggered wage contracts dominate models with only price rigidities. Third, introducing wage indexation does not significantly improve the fit. Fourth, all model estimates suggest a high degree of price stickiness. Fifth, the estimates of labor supply elasticity are higher in models with both staggered price and staggered wage contracts. And finally, the estimated inflation parameters of the Taylor rule are stable across models.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/c96124fb0303a8d6f2c446984e73d7b27b8c287f

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In Economics and Econometrics

Citations in the corpus

Firm-specific capital, nominal rigidities and the business cycle (2011, neutral): “To assess the relative plausibility of the 2 See for example the estimates in Rabanal and Rubio-Ramírez (2005) for the post 1982 era or the NBER working paper 10 617 version of Eichenbaum and Fisher (2007).”
Sticky Prices versus Monetary Frictions: An Estimation of Policy Trade-Offs (2009, neutral): “In many estimated DSGE models, e.g., Smets and Wouters (2003, 2007), Rabanal and Rubio-Ramirez (2005), Levin, Onatski, Williams, and Williams (2006), Justiniano and Primiceri (2008), it is assumed that π∗∗ equals the steady state inflation rate, which essentially eliminates the New Keynesian…”
Does inflation increase after a monetary policy tightening? Answers based on an estimated DSGE model ☆ (2007, methodology): “12 A previous version of the paper ( Rabanal, 2003 ) included estimates for the euro area in a model”
Business cycle measurement with some theory (2011, result): “The parameters used in simulating ‘‘pseudo-actual’’ data are in the fourth column of Table 1(b) and are similar to the estimates of Rabanal and Rubio-Ramirez (2005).”
Vector Autoregressions and Reduced Form Representations of DSGE Models (2007, methodology): “[10] Gali, J., and P. Rabanal (2005), ’Technology shocks and aggregate fluctuations: how well does the RBC model fit postwar US data?’”
What Firms' Surveys Tell Us about Price-Setting Behavior in the Euro Area (2006, neutral): “Smets and Wouters (2003) and Rabanal and Rubio-Ramı́rez (2005) are two recent examples of papers providing estimates of the average duration of prices.”