Working Paper
Towards a compact, empirically verified rational expectations model for monetary policy analysis
Abstract: This paper extends the sticky-price models of Fuhrer and Moore (1995a,b) to include explicit, optimization-based consumption and investment decisions. The goal is to use the resulting model for monetary policy analysis; consequently, strong emphasis is placed on empirical validation of the model. I use a canonical formulation of the consumer's problem from Campbell and Mankiw (1989), and a time-to-build investment model with costs of adjustment. The restrictions imposed by these models, in conjunction with those imposed on prices and output by the Fuhrer-Moore contracting specification, imply dynamic behavior that is grossly inconsistent with the data.
Status: Published in Carnegie-Rochester Conference Series on Public Policy 47 (December 1997): 197-230.
Access Documents
File(s): File format is text/html http://www.bostonfed.org/economic/wp/wp1996/wp96_8.htm
File(s): File format is application/pdf http://www.bostonfed.org/economic/wp/wp1996/wp96_8.pdf
Authors
Bibliographic Information
Provider: Federal Reserve Bank of Boston
Part of Series: Working Papers
Publication Date: 1996
Number: 96-8