Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/64416 
Authors: 
Year of Publication: 
2008
Series/Report no.: 
Working Paper No. 2008-19
Publisher: 
The University of Utah, Department of Economics, Salt Lake City, UT
Abstract: 
In the new Keynesian model of endogenous stabilization governments have objectives with respect to macroeconomic performance, but are constrained by an augmented Phillips curve. We develop an econometric characterization of the political-economic equilibrium using the Kalman filter to model the unobserved natural rate. Applying this methodology to a panel of North Atlantic countries, we find it consistent with history with a few qualifications. For one, governments are more likely to target growth rates, than output gaps. And, inflation expectations are more likely adaptive, than rational. Also, the error restrictions implied by the standard inflation-productivity shocks formulation needs to be relaxed.
Subjects: 
endogenous stabilization
objectives
expectations
Kalman filtering
JEL: 
E61
E63
Document Type: 
Working Paper

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