Year: 2004
Type: preprint
Abstract: The standard version of the new Keynesian model has important, well known, empirical limitations, in particular with regard to inflation and interest rate dynamics following a monetary shock.We demonstrate how the introduction of a modest amount of imperfect information and gradual learning suffices to fix these flaws.The modified model generates inflation persistence, realistic inflation and output dynamics and a liquidity effect.Moreover, the overall fitness of the model -according to standard moments criteria-is also better for imperfect information version relative to the standard version.
Authors: Fabrice Collard, Harris Dellas
Institutions: Université Toulouse-I-Capitole, University of Bern
Language: English
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1542614151