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New Keynesian Phillips Curve (new + keynesian_phillip_curve)

Distribution by Scientific Domains
Business, Economics, Finance and Accounting100%

Selected Abstracts

Estimating the New Keynesian Phillips Curve: A Vertical Production Chain Approach

JOURNAL OF MONEY, CREDIT AND BANKING, Issue 4 2008
ADAM HALE SHAPIRO
New Keynesian Phillips Curve; generalized method of moments; vertical production chain; inflation It has become customary to estimate the New Keynesian Phillips Curve (NKPC) with generalized method of moments using a large instrument set that includes lags of variables that are ad hoc to the firm's price-decision problem. Researchers have also conventionally used real unit labor cost (RULC) as the proxy for real marginal cost even though it is difficult to support its significance. This paper introduces a new proxy for the real marginal cost term as well as a new instrument set, both of which are based on the micro foundations of the vertical chain of production. I find that the new proxy, based on input prices as opposed to wages, provides a more robust and significant fit to the model. Instruments that are based on the vertical chain of production appear to be both more valid and relevant toward the model. [source]

The New Keynesian Phillips Curve: From Sticky Inflation to Sticky Prices

JOURNAL OF MONEY, CREDIT AND BANKING, Issue 4 2008
CHENGSI ZHANG
New Keynesian Phillips Curve; inflation survey forecasts; sticky prices; structural breaks; monetary policy The New Keynesian Phillips Curve (NKPC) model of inflation dynamics based on forward-looking expectations is of great theoretical significance in monetary policy analysis. Empirical studies, however, often find that backward-looking inflation inertia dominates the dynamics of the short-run aggregate supply curve. This inconsistency is examined by investigating multiple structural changes in the NKPC for the U.S. between 1960 and 2005, employing both inflation expectations survey data and a rational expectations approximation. We find that forward-looking behavior plays a smaller role during the high and volatile inflation regime to 1981 than in the subsequent period of moderate inflation, providing empirical support for sticky price models over the last two decades. A break in the intercept of the NKPC is also identified around 2001 and this may be associated with U.S. monetary policy in that period. [source]

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

OXFORD BULLETIN OF ECONOMICS & STATISTICS, Issue 1 2008
Luca Fanelli
Abstract 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. [source]

Weak Identification of Forward-looking Models in Monetary Economics,

OXFORD BULLETIN OF ECONOMICS & STATISTICS, Issue 2004
Sophocles Mavroeidis
Abstract Recently, single-equation estimation by the generalized method of moments (GMM) has become popular in the monetary economics literature, for estimating forward-looking models with rational expectations. We discuss a method for analysing the empirical identification of such models that exploits their dynamic structure and the assumption of rational expectations. This allows us to judge the reliability of the resulting GMM estimation and inference and reveals the potential sources of weak identification. With reference to the New Keynesian Phillips curve of Galí and Gertler [Journal of Monetary Economics (1999) Vol. 44, 195] and the forward-looking Taylor rules of Clarida, Galí and Gertler [Quarterly Journal of Economics (2000) Vol. 115, 147], we demonstrate that the usual ,weak instruments' problem can arise naturally, when the predictable variation in inflation is small relative to unpredictable future shocks (news). Hence, we conclude that those models are less reliably estimated over periods when inflation has been under effective policy control. [source]

Identifying the new Keynesian Phillips curve

JOURNAL OF APPLIED ECONOMETRICS, Issue 5 2008
James M. Nason
Phillips curves are central to discussions of inflation dynamics and monetary policy. The hybrid new Keynesian Phillips curve (NKPC) describes how past inflation, expected future inflation, and a measure of real aggregate demand drive the current inflation rate. This paper studies the (potential) weak identification of the NKPC under Generalized Method of Moments and traces this syndrome to a lack of higher-order dynamics in exogenous variables. We employ analytic methods to understand the economics of the NKPC identification problem in the canonical three-equation, new Keynesian model. We revisit the empirical evidence for the USA, the UK, and Canada by constructing tests and confidence intervals based on the Anderson and Rubin (1949) statistic, which is robust to weak identification. We also apply the Guggenberger and Smith (2008) LM test to the underlying NKPC pricing parameters. Both tests yield little evidence of forward-looking inflation dynamics. Copyright © 2008 John Wiley & Sons, Ltd. [source]