A Small-Sample Study of the New-Keynesian Macro Model

Abstract

This paper presents a small-sample study of the threeequation-three variable New-Keynesian macro model. While the point estimates imply that the Fed has been stabilizing inflation fluctuations since 1980, our econometric analysis suggests considerable uncertainty regarding the stance of the Fed against inflation. We show that, if we add first order autocorrelation to the error terms of the New-Keynesian model, this is only marginally rejected.