Working Paper: NBER ID: w14313
Authors: V. V. Chari; Patrick J. Kehoe; Ellen R. McGrattan
Abstract: Macroeconomists have largely converged on method, model design, reduced-form shocks, and principles of policy advice. Our main disagreements today are about implementing the methodology. Some think New Keynesian models are ready to be used for quarter-to-quarter quantitative policy advice; we do not. Focusing on the state-of-the-art version of these models, we argue that some of its shocks and other features are not structural or consistent with microeconomic evidence. Since an accurate structural model is essential to reliably evaluate the effects of policies, we conclude that New Keynesian models are not yet useful for policy analysis.
Keywords: New Keynesian Models; Policy Analysis; Structural Shocks; Macroeconomics
JEL Codes: E32; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| wage markup shock (J39) | employment fluctuations (J63) |
| wage markup shock (J39) | inflation fluctuations (E31) |
| new Keynesian models (E12) | policy analysis (D78) |
| dubiously structural shocks (E32) | reliability of policy analysis (D78) |