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Identification-Robust Minimum Distance Estimation of the New Keynesian Phillips Curve

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  • LEANDRO M. MAGNUSSON
  • SOPHOCLES MAVROEIDIS

Abstract

Limited-information identification-robust methods on the indexation and price rigidity parameters of the New Keynesian Phillips Curve yield very wide confidence intervals. Full-information methods impose more restrictions on the reduced-form dynamics and thus make more efficient use of the information in the data. However, such methods are also subject to weak instrument problems. We propose identification-robust minimum distance methods for exploiting these additional restrictions and show that they yield considerably smaller confidence intervals for the coefficients of the model compared to their limited-information generalized method of moments counterparts. In contrast to previous studies, we find evidence of partial but not full indexation, and obtain sharper inference on the degree of price stickiness. However, this parameter remains weakly identified. Copyright (c) 2010 The Ohio State University.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 42 (2010)
Issue (Month): 2-3 (03)
Pages: 465-481

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Handle: RePEc:mcb:jmoncb:v:42:y:2010:i:2-3:p:465-481

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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Cited by:
  1. Hyeongwoo Kim & Ippei Fujiwara & Bruce E. Hansen & Masao Ogaki, 2013. "Purchasing Power Parity and the Taylor Rule," CAMA Working Papers 2013-41, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  2. Dufour, Jean-Marie & Khalaf, Lynda & Kichian, Maral, 2013. "Identification-robust analysis of DSGE and structural macroeconomic models," Journal of Monetary Economics, Elsevier, vol. 60(3), pages 340-350.
  3. Mariano Kulish & Adrian Pagan, 2013. "Issues in Estimating New-Keynesian Phillips Curves in the Presence of Unknown Structural Change," RBA Research Discussion Papers rdp2013-11, Reserve Bank of Australia.
  4. Antonio Diez de los Rios, 2013. "A New Linear Estimator for Gaussian Dynamic Term Structure Models," Working Papers 13-10, Bank of Canada.

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