The Euler equation around the world
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Livio Stracca
Abstract
This paper discusses the empirical challenges associated with the estimation of the New Keynesian IS curve and provides an estimate of the forward looking IS curve by pooling macro data from 31 countries, delivering over 4000 observations on which to test the specification. The main finding of the paper is that it is possible to recover the theory-consistent IS curve from macro data when the sample size is large enough and the intrument is valid and strong. I also test the validity of the instruments by comparing estimates in countries which have or do not have an independent monetary policy reaction function. Another relevant finding is that the slope of the IS curve appears to have steepened over time since the 1990s, probably reflecting financial liberalisation.
Acknowledgment
I thank two anonymous referees, Alexander Chudik, Donata Faccia, Jordi Gali, John Leahy, Chiara Osbat and Giovanni Olivei for useful suggestions. The views expressed in this paper belong to the author and are not necessarily shared by the European Central Bank.
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Articles in the same Issue
- Advances
- Does microfinance reduce poverty? Some international evidence
- Exchange rate policy and the role of non-traded goods prices in real exchange rate fluctuations
- Democracy and income: taking parameter heterogeneity and cross-country dependency into account
- Pass-through of imported input prices to domestic producer prices: evidence from sector-level data
- Economic policy uncertainty and household inflation uncertainty
- Corruption, fiscal policy, and growth: a unified approach
- Monetary policy and energy price shocks
- Government education expenditures and economic growth: a meta-analysis
- Has the forecasting performance of the Federal Reserve’s Greenbooks changed over time?
- Life-cycle consumption, precautionary saving, and risk sharing: an integrated analysis using household panel data
- Can removing the tax cap save Social Security?
- A non-monotonic relationship between public debt and economic growth: the effect of financial monopsony
- The Euler equation around the world
- Structural change and non-constant biased technical change
- Contributions
- Trade and growth in a model of allocative inefficiency
- Macroeconomic Shocks and Corporate R&D
