Economic Quarterly

Arguments favoring Keynesian models over real business cycle models are often made on the grounds that the correlations and impulse response patterns found in the latter are inconsistent with the data. A recent and prominent example of this type of reasoning is Gali (1999). But such conclusions involve assumptions concerning the characterization of monetary policy. The systematic portion of monetary policy is crucial for interpreting many of the correlations and impulse response functions emphasized in the literature. Basically, the featured empirical facts are not useful for discerning the underlying price-setting behavior of firms.