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International evidence on the efficacy of new-Keynesian models of inflation persistence

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  • Oleg Korenok

    (Department of Economics, Virginia Commonwealth University, Richmond, VA, USA)

  • Stanislav Radchenko

    (Department of Economics, University of North Carolina at Charlotte, Charlotte, NC, USA)

  • Norman R. Swanson

    (Department of Economics, Rutgers University, New Brunswick, NJ, USA)

Abstract

We take an agnostic view of the Phillips curve debate, and carry out an empirical investigation of the relative and absolute efficacy of Calvo sticky price (SP), sticky information (SI), and sticky price with indexation models (SPI), with emphasis on their ability to mimic inflationary dynamics. We look at evidence for a group of 13 OECD countries, and consider three alternative measures of inflationary pressure, including the output gap, labor share, and unemployment. We find that the SPI model is preferable to the Calvo SP and the SI models because it captures the type of strong inflationary persistence that has in the past characterized the economies in our sample. However, two caveats to this conclusion are that improvement in performance is driven mostly by lagged inflation and that the SPI model overemphasizes inflationary persistence. There appears to be room for improvement in all models in order to induce them to better 'track' inflation persistence. Copyright © 2009 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jae.1128
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 25 (2010)
Issue (Month): 1 ()
Pages: 31-54

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Handle: RePEc:jae:japmet:v:25:y:2010:i:1:p:31-54

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Cited by:
  1. Sophocles Mavroeidis & Mikkel Plagborg-Møller & James H. Stock, 2014. "Empirical Evidence on Inflation Expectations in the New Keynesian Phillips Curve," Journal of Economic Literature, American Economic Association, vol. 52(1), pages 124-88, March.
  2. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky information versus sticky prices: a proposal to replace the New-Keynesian Phillips curve," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
  3. Martin Fukac & Adrian Pagan, 2008. "Limited Information Estimation and Evaluation of DSGE Models," Reserve Bank of New Zealand Discussion Paper Series DP2008/11, Reserve Bank of New Zealand.
  4. Costantini, Mauro & Gunter, Ulrich & Kunst, Robert M., 2012. "Forecast Combination Based on Multiple Encompassing Tests in a Macroeconomic DSGE-VAR System," Economics Series 292, Institute for Advanced Studies.
  5. Oleg Korenok, 2005. "Empirical Comparison of Sticky Price and Sticky Information Models," Macroeconomics 0510004, EconWPA.
  6. Norman Swanson & Oleg Korenok & Stanislav Radchenko, 2006. "International Evidence on the Efficacy of new-Keynesian Models of Inflation Persistence," Departmental Working Papers 200617, Rutgers University, Department of Economics.
  7. Sophocles N. Brissimis & Ifigeneia Skotida, 2007. "Optimal Monetary Policy in the Euro Area in the Presence of Heterogeneity," Working Papers 62, Bank of Greece.
  8. Goecke, Henry & Luhan, Wolfgang J. & Roos, Michael W.M., 2013. "Rational inattentiveness in a forecasting experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 94(C), pages 80-89.

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