Economics: The Open-Access, Open Assessment E-Journal http://www.economics-ejournal.org en Mikael Juselius Testing the New Keynesian Model on U.S. and Euro Area Data 2008-05-21 I apply the Johansen and Swensen (1999, 2004) method of testing exact rational expectations within the cointegrated VAR (Vector Auto-Regressive) model, to testing the New Keynesian (NK) model. This method permits the testing of rational expectation systems, while allowing for non-stationary data. The NK-model is tested on quarterly U.S. and Euro area time series data. I find that the restrictions implied by the core equations of the NK-model are rejected regardless of sample periods or measures of real marginal costs. I also provide a tentative explanation of the results favored by previous researches. Paper submitted to the special issue “ Using Econometrics for Assessing Economic Models ” edited by Katarina Juselius http://www.economics-ejournal.org/economics/discussionpapers/2008-23 JEL C32 JEL C52 JEL E31 JEL E52