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Competitive moment matching of a New-Keynesian and an Old-Keynesian model

Regular Article

Abstract

The paper considers two rival models referring to the new macroeconomic consensus: a standard three-equation model of the New-Keynesian variety versus dynamic adjustments of a business and an inflation climate in an ‘Old-Keynesian’ tradition. Over the two subperiods of the Great Inflation and Great Moderation, both of them are estimated by the method of simulated moments. An innovative feature is here that the moments do not only include the autocovariances up to eight lags of quarterly output, inflation and the interest rate, but optionally also a measure of the raggedness of the three variables. In short, the performance of the Old-Keynesian model is very satisfactory and similar to the New-Keynesian model, or even better. In particular, the Old-Keynesian model is better suited to match the new moments without deteriorating the original second moments too much.

Keywords

Sentiment dynamics New macroeconomic consensus Method of simulated moments Great Inflation Great Moderation 

JEL Classification

C52 E32 E37 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2016

Authors and Affiliations

  1. 1.University of KielKielGermany

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