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Testing the New Keynesian Phillips Curve Through Vector Autoregressive Models: Results from the Euro Area

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File Size : 47,13 MB

Release : 2006

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In this paper we set out a test of the New Keynesian Phillips Curve (NKPC) based on Vector Autoregressive (VAR) models. The proposed technique does not rely on the Anderson and Moore (1985) method and can be implemented with any existing econometric software. The idea is to use a VAR involving the inflation rate and the forcing variable(s) as the expectation generating system and find the restrictions that nest the NKPC within the VAR. The model can be estimated and tested through maximum likelihood methods. We show that the presence of feedbacks from the inflation rate to the forcing variable(s) can affect solution properties of the NKPC; when feedbacks are detected the VAR should be regarded as the final form solution of a more general structural model. Possible non-stationary in the variables can be easily taken into account within our framework. Empirical results point that the standard "hybrid" versions of the NKPC are far from being a good first approximation to the dynamics of inflation in the Euro area.



Testing the New Keynesian Phillips Curve Through Vector Autoregressive Models

Author : Luca Fanelli

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Page : 0 pages

File Size : 48,19 MB

Release : 2008

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This paper addresses the issue of testing the hybrid New Keynesian Phillips curve (NKPC) through vector autoregressive (VAR) systems and likelihood methods, giving special emphasis to the case where the variables are non-stationary. The idea is to use a VAR for both the inflation rate and the explanatory variable(s) to approximate the dynamics of the system and derive testable restrictions. Attention is focused on the inexact formulation of the NKPC. Empirical results over the period 1971-98 show that the NKPC is far from providing a good first approximation of inflation dynamics in the Euro area.



Identifying the New Keynesian Phillips Curve

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File Size : 49,88 MB

Release : 2005

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"Phillips curves are central to discussions of inflation dynamics and monetary policy. New Keynesian Phillips curves describe how past inflation, expected future inflation, and a measure of real marginal cost or an output gap drive the current inflation rate. This paper studies the (potential) weak identification of these curves under generalized methods of moments (GMM) and traces this syndrome to a lack of persistence in either exogenous variables or shocks. The authors employ analytic methods to understand the identification problem in several statistical environments: under strict exogeneity, in a vector autoregression, and in the canonical three-equation, New Keynesian model. Given U.S., U.K., and Canadian data, they revisit the empirical evidence and construct tests and confidence intervals based on exact and pivotal Anderson-Rubin statistics that are robust to weak identification. These tests find little evidence of forward-looking inflation dynamics"--Federal Reserve Bank of Atlanta web site.





Is There a Phillips Curve? A Full Information Partial Equilibrium Approach

Author : Mr.Roberto Piazza

Publisher : International Monetary Fund

Page : 59 pages

File Size : 41,47 MB

Release : 2018-03-09

Category : Business & Economics

ISBN : 1484345207

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Empirical tests of the New Keynesian Phillips Curve have provided results often inconsistent with microeconomic evidence. To overcome the pitfalls of standard estimations on aggregate data, a Full Information Partial Equilibrium approach is developed to exploit sectoral level data. A model featuring sectoral NKPCs subject to a rich set of shocks is constructed. Necessary and sufficient conditions on the structural parameters are provided to allow sectoral idiosyncratic components to be linearly extracted. Estimation biases are corrected using the model's restrictions on the partial equilibrium propagation of idiosyncratic shocks. An application to the US, Japan and the UK rejects the purely forward looking, labor cost-based NKPC.





Testing for a Forward-Looking Phillips Curve

Author : Eric Jondeau

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Page : 0 pages

File Size : 31,14 MB

Release : 2010

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The "New Keynesian" Phillips Curve (NKPC) states that inflation has a purely forward-looking dynamics. In this paper, we test whether European and US inflation dynamics can be described by this model. For this purpose, we estimate hybrid Phillips curves, which include both backward and forward-looking components, for major European countries, the euro area, and the US. Estimation is performed using the GMM technique as well as the ML approach. We examine the sensitivity of the results to the choice of output gap or marginal cost as the driving variable, and test the stability of the obtained specifications. Our findings can be summarized as follows. First, in all countries, the NKPC has to be augmented by additional lags and leads of inflation, in contrast to the prediction of the core model. Second, the fraction of backward-looking price setters is large (in most cases, more than 50 percent), suggesting only limited differences between the US and the euro area. Finally, our preferred specification includes marginal cost in the case of the US and the UK, and output gap in the euro area.



Testing the New Keynesian Phillips Curve

Author : Luca Bindelli

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Page : 0 pages

File Size : 35,78 MB

Release : 2005

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We propose a new test of the forward-looking Phillips curve for a panel of 10 OECD countries. Structural parameter estimates are obtained using an extremum estimation method which is applied in the frequency domain. Such an estimator has the advantage of enabling the econometrician to focus on subsets of frequencies for which the model is specifically designed. For most countries, and once we control for a lagged inflation term, we find that the majority of the price setters are backward looking. In addition, our evidence is compatible with the hypothesis that prices are adjusted according to a fixed, time invariant pricing rule.