DP4811 What We Don't Know About the Monetary Transmission Mechanism and Why We Don't Know It
|Author(s):||Andreas Beyer, Roger E A Farmer|
|Publication Date:||December 2004|
|Keyword(s):||Benhabib-Farmer model, Identification, indeterminacy, new-Keynesian model|
|JEL(s):||C39, C62, D51, E52, E58|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=4811|
We study identification in a class of linear rational expectations models. For any given exactly identified model, we provide an algorithm that generates a class of equivalent models that have the same reduced form. We use our algorithm to show that a model proposed by Benhabib and Farmer  is observationally equivalent to the standard new-Keynesian model when observed over a single policy regime. However, the two models have different implications for the design of an optimal policy rule.