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The Euler equation around the world

The Euler equation around the world AbstractThis paper discusses the empirical challenges associated with the estimation of the New Keynesian IS curve and provides an estimate of the forward looking IS curve by pooling macro data from 31 countries, delivering over 4000 observations on which to test the specification. The main finding of the paper is that it is possible to recover the theory-consistent IS curve from macro data when the sample size is large enough and the intrument is valid and strong. I also test the validity of the instruments by comparing estimates in countries which have or do not have an independent monetary policy reaction function. Another relevant finding is that the slope of the IS curve appears to have steepened over time since the 1990s, probably reflecting financial liberalisation. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The B.E. Journal of Macroeconomics de Gruyter

The Euler equation around the world

Stracca, Livio
The B.E. Journal of Macroeconomics , Volume 17 (2): 1 – Jul 31, 2017
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Publisher
de Gruyter
Copyright
©2017 Walter de Gruyter GmbH, Berlin/Boston
ISSN
1935-1690
eISSN
1935-1690
DOI
10.1515/bejm-2013-0117
Publisher site
See Article on Publisher Site

Abstract

AbstractThis paper discusses the empirical challenges associated with the estimation of the New Keynesian IS curve and provides an estimate of the forward looking IS curve by pooling macro data from 31 countries, delivering over 4000 observations on which to test the specification. The main finding of the paper is that it is possible to recover the theory-consistent IS curve from macro data when the sample size is large enough and the intrument is valid and strong. I also test the validity of the instruments by comparing estimates in countries which have or do not have an independent monetary policy reaction function. Another relevant finding is that the slope of the IS curve appears to have steepened over time since the 1990s, probably reflecting financial liberalisation.

Journal

The B.E. Journal of Macroeconomics – de Gruyter

Published: Jul 31, 2017

References

  • Intertemporal Substitution in Consumption
  • International Evidence on the Stability of the Optimizing IS Equation
  • A Survey of Weak Instruments and Weak Indentification in Generalized Methods of Moments
  • Dynamic IS Curves With and Without Money: An International Comparison