Unemployment in an Estimated New Keynesian Model
Chapter in NBER book NBER Macroeconomics Annual 2011, Volume 26 (2012), Daron Acemoglu and Michael Woodford, editors (p. 329 - 360)
We reformulate the Smets-Wouters (2007) framework by embedding the theory of unemployment proposed in Galí (2011b, 2011c). We estimate the resulting model using postwar US data, while treating the unemployment rate as an additional observable variable. Our approach overcomes the lack of identification of wage markup and labor supply shocks highlighted by Chari, Kehoe, and McGrattan (2008) in their criticism of New Keynesian models, and allows us to estimate a "correct" measure of the output gap. In addition, the estimated model can be used to analyze the sources of unemployment fluctuations.
Document Object Identifier (DOI): 10.1086/663994This chapter first appeared as NBER working paper w17084, Unemployment in an Estimated New Keynesian Model, Jordi Galí, Frank Smets, Rafael Wouters
Commentary on this chapter:
Comment, Lawrence J. Christiano
Comment, Richard Rogerson
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