Working Paper: NBER ID: w7511
Authors: Peter N. Ireland
Abstract: This paper focuses on the specification and stability of a dynamic, stochastic, general equilibrium model of the American business cycle with sticky prices. Maximum likelihood estimates reveal that the data prefer a version of the model in which adjustment costs apply to the price level but not to the inflation rate. Formal hypothesis test detect instability in the estimated parameters, particularly in estimates of the representative household's discount factor. Evidently, more detailed descriptions of the economy are needed to explain movements in interest rates before and after 1979.
Keywords: No keywords provided
JEL Codes: E31; E32; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| price adjustment costs (L11) | business cycle dynamics (E32) |
| estimated discount factor (H43) | interest rate movements (E43) |
| model specifications (C52) | economic outcomes (F61) |
| instability in parameter estimates (C51) | need for detailed economic descriptions (N10) |