This paper proposes a novel Maximum Likelihood (ML) strategy to estimate Euler equations implied by dynamic stochastic theories. The strategy exploits rational expectations cross-equation restrictions, but circumvents the problem of multiple solutions that arises in Sargent’s (1979) original work by imposing the restrictions on the forcing variable rather than the endogenous variable of the Eul...

In this paper we formulate a baseline disequilibrium AS-AD model and empirically estimate it with time series data for the US-economy. The version of the model used here exhibits a Phillips-curve, a dynamic IS curve and a Taylor interest rate rule. It is based on sticky wages and prices, perfect foresight of current inflation rates and adaptive expectations concerning the inflation climate in w...

In this paper we first point out a puzzle regarding the nature of US business cycles over the last thirty years. As is well known, over this period the economy experienced three main cycles. In each case, the common narrative behind these cycles has been that they were in large part driven by demand (residential investment demand in the 2000s, “tech” investment demand in the 1990s, and commerci...

During the recovery from global financial crisis, most advanced economies have experienced a surprisingly weak response of wage inflation to decline in unemployment. In this study, we investigate whether downward rigidity (DWR) is source flattening Phillips curve and lack four economies: Japan, euro area, UK US. We estimate nonlinear New Keynesian model with asymmetric adjustment costs natural ...

This paper revisits the New Keynesian framework, theoretically and quantitatively, in an economy with multiple sectors input‐output linkages. Analytical expressions for Phillips curve welfare, derived as a function of primitives, show that slope all sectoral aggregate curves is decreasing intermediate input shares, while productivity fluctuations endogenously generate inflation‐output tradeoff—...

Determinacy of equilibrium under the original, the backward-looking, the forward-looking and the hybrid Phillips curves is examined. If the monetary authority keeps the nominal money stock to be constant, the equilibrium path is always determinate under the original Phillips curve and the forward-looking one. Under the backward-looking one and the hybrid one, however, the path can be non-existe...