Journal Article
No. 2008-24 | July 24, 2008
Testing the New Keynesian Model on U.S. and Euro Area Data

Abstract

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.

JEL Classification:

C32, C52, E31, E52

Assessment

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Cite As

Mikael Juselius (2008). Testing the New Keynesian Model on U.S. and Euro Area Data. Economics: The Open-Access, Open-Assessment E-Journal, 2 (2008-24): 1–26. http://dx.doi.org/10.5018/economics-ejournal.ja.2008-24


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