Posted

June 06, 2011 11:39:23 PM

Date

2011-05

Author

Jordi Galí, Frank Smets, and Rafael Wouters

Affiliation

National Bureau of Economic Research

Title

Unemployment in an Estimated New Keynesian Model

Summary /
Abstract

We reformulate the Smets-Wouters (2007) framework by embedding the theory of unemployment proposed in Galí (2011a,b). We estimate the resulting model using postwar U.S. 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.

URL

http://d.repec.org/n?u=RePEc:nbr:nberwo:17084&r=mac

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