Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212249 
Year of Publication: 
2013
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 9/2013
Publisher: 
Bank of Finland, Helsinki
Abstract: 
Cancellation of income and substitution effect implied by King-Plosser-Rebelo (1988) preferences breaks tight coefficient restriction between the slope of the Phillips curve and the elasticity of consumption with respect to real interest rate in a sticky price macro model. This facilitates the estimation of intertemporal elasticity of substitution using full information Bayesian Maximum Likelihood techniques within a structural model. The US data from the period 1984 - 2007 supports low intertemporal elasticity of substitution and strongly rejects a logarithmic and an additively separable utility specification commonly applied in the New Keynesian literature.
Subjects: 
Monetary policy
Bayesian estimation
Non-separable utility
JEL: 
E32
E52
E21
Persistent Identifier of the first edition: 
ISBN: 
978-952-6699-12-7
Document Type: 
Working Paper

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