Robustness of the Estimates of the Hybrid New Keynesian Phillips Curve

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Robustness of the Estimates of the Hybrid New Keynesian Phillips Curve

Author Info

Jordi Galí () (Universitat Pompeu Fabra)
Mark Gertler () (New York University)
David López-Salido () (Banco de España)

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Mark L. Gertler

Abstract

Galí and Gertler (1999) developed a hybrid variant of the New Keynesian Phillips curve that relates inflation to real marginal cost, expected future inflation and lagged inflation. GMM estimates of the model suggest that forward looking behavior is dominant: The coefficient on expected future inflation substantially exceeds the coefficient on lagged inflation. While the latter differs significantly from zero, it is quantitatively modest. Several authors have suggested that our results are the product of specification bias or suspect estimation methods. Here we show that these claims are incorrect, and that our results are robust to a variety of estimation procedures, including GMM estimation of the closed form, and nonlinear instrumental variables. Also, as we discuss, many others have obtained very similar results to ours using a systems approach, including FIML techniques. Hence, the conclusions of GG and others regarding the importance of forward looking behavior remain robust.

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Paper provided by Banco de España in its series Banco de España Working Papers with number 0520.

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Length: 21 pages
Date of creation: Aug 2005
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Handle: RePEc:bde:wpaper:0520

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Article
- Gali, Jordi & Gertler, Mark & David Lopez-Salido, J., 2005. "Robustness of the estimates of the hybrid New Keynesian Phillips curve," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1107-1118, September. [Downloadable!] (restricted)
Paper
- Jordi Gali & Mark Gertler & David Lopez-Salido, 2005. "Robustness of the Estimates of the Hybrid New Keynesian Phillips Curve," NBER Working Papers 11788, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)

References listed on IDEAS
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