Loughborough University. Department of Economics. Discussion Paper Series;WP 2007 - 16
This paper seeks to demonstrate that a backward looking specification of the IS curve using UK data can encompass the forward looking model recently discussed by Kara and Nelson (2004). By relaxing the restriction that the interest rate and the inflation rate enter the IS curve with coefficients of equal magnitude but opposite sign, we obtain IS curve estimates which are empirically plausible and which encompass the rival specification.
This is a working paper is also available at: http://ideas.repec.org/p/lbo/lbowps/2007_16.html