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Assessing Indexation-Based Calvo Inflation Models

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Author Info
Jean-Marie Dufour
Lynda Khalaf
Maral Kichian
Abstract

Using identification-robust methods, the authors estimate and evaluate for Canada and the United States various classes of inflation equations based on generalized structural Calvo-type models. The models allow for different forms of frictions and vary in their assumptions regarding the type of price indexation adopted by firms. Point and confidence-set parameter estimates are obtained based on the inversion of identification-robust test statistics. Focus is maintained on the structural aspect of the model with formal imposition of the restrictions that map the theoretical model into the econometric one. The results show that there is some statistical merit to using indexation-based Calvo-type models for inflation. However, some identification difficulties are also uncovered with considerable uncertainty associated with estimated parameter values. In particular, we find that implausibly-high frequency of price re-optimization values cannot be ruled out from our identification-robust confidence sets.

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Paper provided by Bank of Canada in its series Working Papers with number 09-7.

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Length: 27 pages
Date of creation: 2009
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Handle: RePEc:bca:bocawp:09-7

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Related research
Keywords: Inflation and prices; Econometric and statistical methods;

Find related papers by JEL classification:
C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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  1. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
    Other versions:
  2. Jean-Marie Dufour, 1997. "Some Impossibility Theorems in Econometrics with Applications to Structural and Dynamic Models," Econometrica, Econometric Society, vol. 65(6), pages 1365-1388, November.
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    Other versions:
  5. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October. [Downloadable!] (restricted)
    Other versions:
  6. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, 09. [Downloadable!] (restricted)
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  7. Rudd, Jeremy & Whelan, Karl, 2005. "New tests of the new-Keynesian Phillips curve," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1167-1181, September. [Downloadable!] (restricted)
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  8. Donald W. K. Andrews & Marcelo J. Moreira & James H. Stock, 2006. "Optimal Two-Sided Invariant Similar Tests for Instrumental Variables Regression," Econometrica, Econometric Society, vol. 74(3), pages 715-752, 05. [Downloadable!] (restricted)
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  11. Dufour, Jean-Marie & Khalaf, Lynda & Kichian, Maral, 2006. "Inflation dynamics and the New Keynesian Phillips Curve: An identification robust econometric analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 30(9-10), pages 1707-1727. [Downloadable!] (restricted)
    Other versions:
  12. Dufour, Jean-Marie & Jasiak, Joann, 2001. "Finite Sample Limited Information Inference Methods for Structural Equations and Models with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(3), pages 815-43, August.
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  15. Linde, Jesper, 2005. "Estimating New-Keynesian Phillips curves: A full information maximum likelihood approach," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1135-1149, September. [Downloadable!] (restricted)
    Other versions:
  16. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
    Other versions:
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