2006), Putting the New Keynesian model to a test: An SVAR analysis with DSGE priors, manuscript

In this paper, we evaluate the conditional properties of a DSGE model using sign restric-tions in a structural vector autoregression (SVAR) for the United States and the euro area. In particular, a minimum set of general constraints derived from the New Keynesian DSGE model, but robust to variations in structural parameters and to the á priori choice of the model are utilized to identify monetary policy, preference, government spending, investment, price mark-up, technology and labor supply shocks. Controversial conditional responses such as the reaction of hours worked following a technology shock and the impact of government spending on private consumption remain unrestricted, so that the data can provide us with more information about their validity. We show that most of the conditional responses re-main consistent with the New Keynesian DSGE model, including the controversial negative e¤ect of government spending on private consumption and investment. Some interesting di¤erences, however, emerge. Speci\u85cally, we \u85nd a positive e¤ect of a technology shocks on hours worked, and a positive impact of preference and investment shocks on respectively investment and consumption. JEL classi\u85cation: C32, C51, E32, E5