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Inflation Dynamics Under The Sticky Information Phillips Curve

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  • Iulian Ciobica

Abstract

This paper aims to present the theoretical foundation of the sticky information Phillips curve as outlined by Mankiw and Reis (2002) and to investigate the empirical validity of the model on Romanian data following the methodology proposed by Coibion (2010). The analysis is performed in comparison with the forward looking new keynesian Phillips curve. This allows us to stress the differences between the two models and to asses whether the sticky information framework outperforms the sticky prices framework.The estimation of the two models is done conditional on the same expectations data set which is obtained by simulation following the methodology proposed by Khan and Zhu (2006). The results suggest that the sticky information Phillips curve is consistent with the data, but, compared with the sticky price model, it has an inferior ability to predict inflation. This comes mainly from the fact that the model relies on an weighted average of past forecasts of inflation which generates a substantial degree of inertia. Formally, the two models are compared using the nonnested Davidson-Mackinnon J test.

Suggested Citation

  • Iulian Ciobica, 2010. "Inflation Dynamics Under The Sticky Information Phillips Curve," Advances in Economic and Financial Research - DOFIN Working Paper Series 41, Bucharest University of Economics, Center for Advanced Research in Finance and Banking - CARFIB.
    • Handle: RePEc:cab:wpaefr:41
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    File URL: http://www.dofin.ase.ro/Working%20papers/Ciobica%20Iulian/ciobica.iulian.dissertation.pdf
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    Keywords

    sticky information Phillips curve;

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