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Journal Article

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

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

Citation

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

Assessment

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