Assessing Dsge Models with Capital Accumulation and Indeterminacy
March 1, 2012
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Summary
The simulated results of this paper show that New Keynesian DSGE models with capital accumulation can generate substantial persistencies in the dynamics of the main economic variables, due to the stock nature of capital. Empirical estimates on U.S. data from 1960:I to 2008:I show the response of monetary policy to inflation was almost twice lower than traditionally considered, as capital accumulation creates an additional channel of influence through real interest rates in the production sector. Versions of the model with indeterminacy empirically outperform determinate versions. This paper allows for the reconsideration of previous findings and has significant monetary policy implications.
Subject: Capital accumulation, Consumption, Economic theory, Financial services, Inflation, National accounts, Neoclassical theory, Prices, Real interest rates
Keywords: Capital Accumulation, Consumption, Indeterminacy, Inflation, interest rate, Monetary DSGE Models, monetary policy, monetary policy rule, Neoclassical theory, passive monetary policy, Real interest rates, rule parameter, rule version, versions of the model, WP
Pages:
35
Volume:
2012
DOI:
Issue:
083
Series:
Working Paper No. 2012/083
Stock No:
WPIEA2012083
ISBN:
9781475502350
ISSN:
1018-5941
