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Finance and Economics Discussion Series
The Finance and Economics Discussion Series logo links to FEDS home page How Well Does the New Keynesian Sticky-Price Model Fit the Data?
John M. Roberts

Abstract: The New Keynesian sticky-price model has become increasingly popular for monetary-policy analysis. However, there have been conflicting results on the empirical performance of the model. In this paper, I attempt to reconcile these conflicting claims by examining various specifications of the model within the context of a single framework. I find that the New Keynesian model does not fit the U.S. data well; in particular, the model requires additional lags of inflation not implied by the model under rational expectations. These additional lags have the interpretation that some fraction of the population uses a simple univariate rule for forecasting inflation.

Keywords: Inflation, Phillips curve, New Keynesian economics

Full paper (150 KB PDF)

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Last update: February 27, 2001