Non-nested test of New Classical vs Keynesian models: evidence from European economies.

It is the aim of the present paper to contribute to this process by reproducing Barro--Pesaran experiment with data from four western European economies: France, Germany, Italy and Spain. Such a study, it is hoped, will determine the extent to which the conclusions reached by the above authors may be confirmed for countries whose political and economic environments differ from those present in the US and the UK.
The choice of the countries in our sample was motivated by the following three factors. (1) The bulk of extant empirical work pertains to US and occasionally to UK data [Barro (1977, 1978) and Pesaran (1982a) use US data while Attfield et al. (1981) estimate a quarterly model for the UK fashioned after Barro's model]. (2) The size of these four countries and the importance to their economies of international trade provide the opportunity to test the contending models in the ease of small open economies. (3) The countries retain the basic complexion of a decentralized capitalist economy. Extension of this research to other countries with different economic and political environment would be desirable.
Before presenting our empirical results, their place within the broader controversy of New Classical vs Keynesian has to be highlighted. Accordingly, the rest of the paper is organized as follows. Section II contains a general survey of the issues separating New Classicals from Keynesians. In Section III, the model and the procedures to be followed in our empirical work are laid out, and the relevant empirical findings for the US economy are, briefly, surveyed. Section IV presents our empirical results, and Section V contains the conclusions of the study. [ABSTRACT FROM AUTHOR]