DP13655 Some International Evidence for Keynesian Economics Without the Phillips Curve

Author(s): Roger E A Farmer, Giovanni Nicolò
Publication Date: April 2019
Date Revised: June 2019
Keyword(s): belief function, Indeterminacy, Keynesian economics, Phillips curve
JEL(s): E3, E4, F0
Programme Areas: Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13655

Farmer and Nicolò (2018) show that the Farmer Monetary (FM)-Model outperforms the three-equation New-Keynesian (NK)-model in post -war U.S. data. In this paper, we compare the marginal data density of the FM-model with marginal data densities for determinate and indeterminate versions of the NK-model for three separate samples using U.S., U.K. and Canadian data. We estimate versions of both models that restrict the parameters of the private sector equations to be the same for all three countries. Our preferred specification is the constrained version of the FM-model which has a marginal data density that is more than 40 log points higher than the NK alternative. Our findings also demonstrate that cross-country macroeconomic differences are well explained by the different shocks that hit each economy and by differences in the ways in which national central banks reacted to those shocks.