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In this paper we assess the performance of the New Keynesian IS Curve for the G7 countries. We find that there is an IS puzzle for both the purely backwardlooking as well as for the forward-looking IS curve. The real interest rate does not have a significantly negative effect on the output gap....
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inflation. Based on the extended specifications of the model, which take into account the significant effect of commodity prices … on inflation and of house prices on the output gap, we are generally able to restore a significant monetary transmission …
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