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Economia Aplicada

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ARAUJO, Eurilton. The cross-correlation between output and nominal variables in new keynesian models calibrated to Brazil and the U.S.. Econ. Apl. [online]. 2011, vol.15, n.4, pp.507-534. ISSN 1413-8050.

This paper investigates if the interaction between habit formation and a forward-looking Taylor rule can mimic the observed dynamic correlations between output and nominal variables (inflation and interest rates) in Brazil and in the U.S. I carry out the analysis in a new Keynesian model under sticky price or sticky information. The empirical cross-correlation pattern, obtained from the data, for Brazil is different from the U.S. pattern. For both countries, the models that I considered cannot replicate with a fair amount of accuracy the dynamic correlations between output and nominal variables, though sticky price models and sticky information models imply different propagation mechanisms for macroeconomic shocks.

Keywords : Cross-correlation; new Keynesian; nominal variables.

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