Assessing Simple Policy Rules: A View from a Complete Macroeconomic Model

Abstract

and McCallum and Nelson (1999); and identified VARs are associated with Leeper, Sims, and Zha (1996), Christiano, Eichenbaum, and Evans (1999), and Bernanke and Mihov (1998).A third approach combines simple Taylor-type rules with large econometric models of the economy as in Bryant, Hooper, and Mann (1993), Taylor (1993b), and Levin, Wieland, and Williams (1999).2 At the conference, a semantic debate took place concerning whether the class of models we have in mind are "New Keynesian."Nothing substantive rests on the terminology.We adopted the term from Clarida, Gali, and Gertler (1999) who labeled the literature "New Keynesian."3 See, for example, Rotemberg and Woodford (1999) or Gali, Lopez-Salido, and Valles (2000).4 For example, Bernanke and Mihov (1998), Sims (1999), Leeper and Zha (2001), or Hanson (2000b).5 NK models are not unique in this regard.Virtually all dynamic stochastic general equilibrium models suffer from the kind of identification problems that concern us (see Canova and Pina, 2000).

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