@article{ab4a6c7edf044928a46ae14628aa95f8,
title = "Monetary policy and sunspot fluctuations in the United States and the Euro area",
abstract = "We estimate a two-country open economy version of the New Keynesian dynamic stochastic general equilibrium model for the United States and the Euro area, using Bayesian techniques that allow for both determinacy and indeterminacy of the equilibrium. Empirical analysis shows that the worldwide equilibrium is indeterminate due to a passive monetary policy in the Euro area, even if U.S. policy is aggressive enough. We demonstrate that the impulse responses under indeterminacy exhibit dynamics different from those under determinacy and that sunspot shocks affect the Euro economy to a substantial degree, whereas the transmission of sunspots to the United States is limited.",
keywords = "Bayesian Analysis, Indeterminacy, Monetary Policy, Open Economy Model, Sunspot Shock",
author = "Yasuo Hirose",
note = "Funding Information: Hirose Yasuo Keio University The author would like to thank Giuseppe Ferrero, Ippei Fujiwara, Hibiki Ichiue, Hirokuni Iiboshi, Masakazu Inada, Thomas Lubik, Aarti Singh, the editor, William Barnett, an anonymous referee, and participants at the Japanese Economic Association Fall Meeting 2008 for insightful comments and discussions. The revision of this paper is supported by Keio Gijuku Academic Development Funds. Address correspondence to: Yasuo Hirose, 2-15-45 Mita , Minato-ku , Tokyo 108-8345 , Japan ; e-mail: yhirose@econ.keio.ac.jp . 25 05 2012 01 2013 17 1 1 28 Copyright {\textcopyright} Cambridge University Press 2012 2012 Cambridge University Press We estimate a two-country open economy version of the New Keynesian dynamic stochastic general equilibrium model for the United States and the Euro area, using Bayesian techniques that allow for both determinacy and indeterminacy of the equilibrium. Empirical analysis shows that the worldwide equilibrium is indeterminate due to a passive monetary policy in the Euro area, even if U.S. policy is aggressive enough. We demonstrate that the impulse responses under indeterminacy exhibit dynamics different from those under determinacy and that sunspot shocks affect the Euro economy to a substantial degree, whereas the transmission of sunspots to the United States is limited. ",
year = "2013",
month = jan,
doi = "10.1017/S1365100510001008",
language = "English",
volume = "17",
pages = "1--28",
journal = "Macroeconomic Dynamics",
issn = "1365-1005",
publisher = "Cambridge University Press",
number = "1",
}