Working
Paper 02-3
by Jeffrey C. Fuhrer
and Glenn D. Rudebusch
Article forthcoming in Journal of Monetary Economics.
New Keynesian macroeconomic models have generally emphasized
that expectations of future output are a key factor
in determining current output. The theoretical motivation
for such forward-looking behavior relies on a straightforward
generalization of the well-known Euler equation for
consumption. In this paper, we use maximum likelihood
and generalized method of moments (GMM) methods to explore
the empirical importance of output expectations. We
find little evidence that rational expectations of future
output help determine current output, especially after
taking into account the small-sample bias in GMM.
This paper was revised in May 2003.
PDF version of paper 
|
