Scandinavian Working Papers in Economics
Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)
No 140: Can a Calibrated New-Keynesian Model of Monetary Policy Fit the Facts?
Ulf Söderström (), Paul Söderlind () and Anders Vredin ()
Additional contact information
Ulf Söderström: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Paul Söderlind: Department of Finance, Postal: Stockholm School of Economics, Box 6501, SE-113 83 Stockholm, Sweden
Anders Vredin: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Abstract: Using an empirical New-Keynesian model with optimal discretionary monetary policy, we calibrate key parameters--the central bank's preference parameters; the degree of forward-looking behavior in the determination of inflation and output; and the variances of inflation and output shocks--to match some broad characteristics of U.S. data. Our preferred parameterizations all imply a small concern for output stability but a large preference for interest rate smoothing, and a small degree of forward-looking behavior in price-setting but a large degree of forward-looking in the determination of output. We provide some intuition for these results and discuss their consequences for practical monetary policy analysis.
Keywords: Interest rate smoothing; central bank objectives; forward-looking behavior
31 pages, September 1, 2002
Full text files
wp_140.pdf
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