How Well Does the New Keynesian Sticky Price Model Fit the Data?

43 Pages Posted: 19 Mar 2001

See all articles by John M. Roberts

John M. Roberts

Board of Governors of the Federal Reserve System

Date Written: February 2001

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

Suggested Citation

Roberts, John M., How Well Does the New Keynesian Sticky Price Model Fit the Data? (February 2001). FRB FEDS Discussion Paper No. 2001-13, Available at SSRN: https://ssrn.com/abstract=263769 or http://dx.doi.org/10.2139/ssrn.263769

John M. Roberts (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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