Working Paper: NBER ID: w10309
Authors: Peter N. Ireland
Abstract: In the New Keynesian model, preference, cost-push, and monetary shocks all compete with the real business cycle model's technology shock in driving aggregate fluctuations. A version of this model, estimated via maximum likelihood, points to these other shocks as being more important for explaining the behavior of output, inflation, and interest rates in the postwar United States data. These results weaken the links between the current generation of New Keynesian models and the real business cycle models from which they were originally derived. They also suggest that Federal Reserve officials have often faced difficult trade-offs in conducting monetary policy.
Keywords: No keywords provided
JEL Codes: E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| technology shocks (Z) (D89) | output growth (Y) (E23) |
| technology shocks (Z) (D89) | inflation (π) (E31) |
| technology shocks (Z) (D89) | nominal interest rate (r) (E43) |
| preference shocks (A) (D11) | output growth (Y) (E23) |
| monetary policy shocks (E39) | output growth (Y) (E23) |
| cost-push shocks (E) (E31) | inflation (π) (E31) |