Abstract
This article estimates the forward looking, backward looking and an extended version of the New Keynesian IS curve for Australia. The validity of these models is investigated by imposing the constraint on real rate of interest as well as when the constraint is relaxed. Two measures of output gap, namely GAP1 (constructed using the unobserved components approach) and GAP2 (constructed using a quadratic trend) are utilized. Our results suggest that the baseline backward looking and forward looking models are overwhelmingly rejected by the data. This evidence strongly supports the extended backward looking model (with GAP2) being relevant for monetary policy analysis.
| Original language | English |
|---|---|
| Pages (from-to) | 3691-3700 |
| Number of pages | 10 |
| Journal | Applied Economics |
| Volume | 45 |
| Issue number | 26 |
| DOIs | |
| Publication status | Published - 2013 |
UN SDGs
This output contributes to the following UN Sustainable Development Goals (SDGs)
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SDG 17 Partnerships for the Goals
Keywords
- Australia
- Keynesian economics
- investments
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