Testing for Indeterminacy: An Application to U.S. Monetary Policy
Open accessAbstract
This paper considers a prototypical New Keynesian model, in which the equilibrium is undetermined if monetary policy is “passive.” The likelihood-based estimation of dynamic equilibrium models is extended to allow for indeterminacies and sunspot fluctuations. We construct posterior weights for the determinacy and indeterminacy region of the parameter space and estimates for the propagation of fundamental and sunspot shocks. According to the estimated model, U.S. monetary policy post-1982 is consistent with determinacy, whereas the pre-Volcker policy is not. We find that before 1979 indeterminacy substantially altered the propagation of shocks.
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Research works printed but not linked: 25
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- Authors
- Lubik, T. A., & Schorfheide, F.
- Affiliations
- Johns Hopkins University (US)
- University of Pennsylvania (US)
- Venue
- American Economic Review
- Publisher
- American Economic Association
- Published
- 2004-02-01
- Volume
- 94
- Issue
- 1
- Pages
- 190-217
- ISSN
- 0002-8282 (ISSN-L)
- OpenAlex
- W3124914874
- Cited by
- 868
- References
- 0
- Citations by year
- 2026: 19 · 2025: 18 · 2024: 28 · 2023: 21 · 2022: 42 · 2021: 33 · 2020: 33 · 2019: 31 · 2018: 46 · 2017: 46 · 2016: 47 · 2015: 45 · 2014: 45 · 2013: 35 · 2012: 51
- FWCI
- 79.44
- Type
- journal article
- Language
- en
- Open access
- green
- doi.org
- Locations
- American Economic Review (publishedVersion)
- SSRN Electronic Journal (acceptedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Econstor (Econstor) (submittedVersion)
- Topics
- Social Sciences › Economics, Econometrics and Finance › General Economics, Econometrics and Finance › Monetary Policy and Economic Impact
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economic theories and models
- Social Sciences › Economics, Econometrics and Finance › General Economics, Econometrics and Finance › Economic Theory and Policy
- Keywords
- indeterminacy, determinacy, New Keynesian model, monetary policy, sunspot fluctuations, likelihood estimation, dynamic equilibrium model, shock wave propagation, US monetary policy
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