WHAT WE DON’T KNOW ABOUT THE MONETARY TRANSMISSION MECHANISM AND WHY WE DON’T KNOW IT

We study identification in a class of linear rational expectations models. For any givenexactly identified model, we provide an algorithm that generates a class of equivalentmodels that have the same reduced form. We use our algorithm to show that a modelproposed by Jess Benhabib and Roger Farmer is observationally equivalent to thestandard new-Keynesian model when observed over a single policy regime. However,the two models have different implications for the design of an optimal policy rule.[...]