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The New Keynesian Phillips Curve and the Role of Expectations: Evidence from the Ifo World Economic Survey

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  • Steffen Henzel

    ()

  • Timo Wollmershäuser

Abstract

We provide evidence on the fit of the hybrid New Keynesian Phillips curve for selected euro zone countries, the US and the UK. Instead of imposing rational expectations and estimating the Phillips curve by the Generalized Method of Moments, we follow Roberts (1997) and Adam and Padula (2003) and use direct measures of inflation expectations. The data source is the Ifo World Economic Survey, which quarterly polls economic experts about their expected future development of inflation. Our main findings are as follows: (i) In comparison with the rational expectations approach, backward-looking behaviour turns out to more relevant for most countries in our sample. (ii) The use of survey data for inflation expectations yields a positive slope of the Phillips curve when the output gap is used as a measure for marginal cost.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1694.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1694

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Keywords: inflation expectations; survey data; euro zone; Phillips curve;

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References

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  1. Paloviita , Maritta, 2004. "Inflation dynamics in the euro area and the role of expectations: further results," Research Discussion Papers, Bank of Finland 21/2004, Bank of Finland.
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  3. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, Elsevier, vol. 44(2), pages 195-222, October.
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  8. Rudd, Jeremy & Whelan, Karl, 2005. "New tests of the new-Keynesian Phillips curve," Journal of Monetary Economics, Elsevier, Elsevier, vol. 52(6), pages 1167-1181, September.
  9. Argia M. Sbordone, 2005. "Do expected future marginal costs drive inflation dynamics?," Staff Reports, Federal Reserve Bank of New York 204, Federal Reserve Bank of New York.
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  12. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," NBER Working Papers 8290, National Bureau of Economic Research, Inc.
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  16. Steffen Henzel & Timo Wollmershäuser, 2005. "Quantifying Inflation Expectations with the Carlson-Parkin Method: A Survey-based Determination of the Just Noticeable Difference," Journal of Business Cycle Measurement and Analysis, OECD Publishing,CIRET, OECD Publishing,CIRET, vol. 2005(3), pages 321-352.
  17. Rumler, Fabio, 2005. "Estimates of the open economy New Keynesian Phillips curve for euro area countries," Working Paper Series, European Central Bank 0496, European Central Bank.
  18. John M. Roberts, 1994. "Is inflation sticky?," Working Paper Series / Economic Activity Section, Board of Governors of the Federal Reserve System (U.S.) 152, Board of Governors of the Federal Reserve System (U.S.).
  19. Jeffrey Fuhrer & George Moore & Scott Schuh, 1993. "Estimating the linear-quadratic inventory model: maximum likelihood versus generalized method of moments," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 93-11, Board of Governors of the Federal Reserve System (U.S.).
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  21. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, Econometric Society, vol. 46(6), pages 1251-71, November.
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Citations

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Cited by:
  1. Adolfo Sachsida & Marcio Ribeiro & Claudio Hamilton dos Santos, 2009. "A Curva de Phillips e a Experiência Brasileira," Discussion Papers, Instituto de Pesquisa Econômica Aplicada - IPEA 1430, Instituto de Pesquisa Econômica Aplicada - IPEA.
  2. Evgenia Kudymowa & Johanna Plenk & Klaus Wohlrabe, 2014. "Ifo World Economic Survey and the Business Cycle in Selected Countries," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 14(4), pages 51-57, 01.
  3. Tomasz Lyziak, 2014. "Inflation expectations in Poland, 2001–2013. Measurement and macroeconomic testing," National Bank of Poland Working Papers, National Bank of Poland, Economic Institute 178, National Bank of Poland, Economic Institute.
  4. Halina Kowalczyk & Tomasz Lyziak & Ewa Stanisławska, 2013. "A new approach to probabilistic surveys of professional forecasters and its application in the monetary policy context," National Bank of Poland Working Papers, National Bank of Poland, Economic Institute 142, National Bank of Poland, Economic Institute.
  5. Katarína Danišková & Jarko Fidrmuc, 2012. "Meta-Analysis of the New Keynesian Phillips Curve," Working Papers, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies) 314, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies).
  6. Katarína Danišková & Jarko Fidrmuc, 2011. "Inflation Convergence and the New Keynesian, Phillips Curve in the Czech Republic," Working Papers, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies) 292, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies).
  7. Evgenia Kudymowa & Johanna Plenk & Klaus Wohlrabe, 2013. "Ifo World Economic Survey und die realwirtschaftliche Entwicklung in ausgewählten Ländern," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 66(19), pages 23-30, October.

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