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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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  1. Ibrahim Chowdhury & Mathias Hoffmann & Andreas Schabert, 2004. "Inflation Dynamics And The Cost Channel Of Monetary Transmission," Royal Economic Society Annual Conference 2004 80, Royal Economic Society.
  2. Laurence Ball & N Gregory Mankiw & Ricardo Reis, 2003. "Monetary Policy for Inattentive Economies," Economics Working Paper Archive 491, The Johns Hopkins University,Department of Economics.
  3. Paloviita , Maritta, 2004. "Inflation dynamics in the euro area and the role of expectations: further results," Research Discussion Papers 21/2004, Bank of Finland.
  4. Campbell Leith & Jim Malley, 2007. "Estimated Open Economy New Keynesian Phillips Curves for the G7," Open Economies Review, Springer, vol. 18(4), pages 405-426, September.
  5. 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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  7. 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.
  8. Fabio Rumler, 2007. "Estimates of the Open Economy New Keynesian Phillips Curve for Euro Area Countries," Open Economies Review, Springer, vol. 18(4), pages 427-451, September.
  9. Pierpaolo Benigno & David López-Salido, 2002. "Inflation persistence and optimal monetary policy in the euro area," International Finance Discussion Papers 749, Board of Governors of the Federal Reserve System (U.S.).
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  13. 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, vol. 2005(3), pages 321-352.
  14. Sbordone, Argia M., 2005. "Do expected future marginal costs drive inflation dynamics?," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1183-1197, September.
  15. Jordi Galí & Mark Gertler, 1998. "Inflation dynamics: A structural econometric analysis," Economics Working Papers 341, Department of Economics and Business, Universitat Pompeu Fabra.
  16. Klaus Adam & Mario Padula, 2002. "Inflation Dynamics and Subjective Expectations in the United States," CSEF Working Papers 78, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 02 Jun 2009.
  17. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
  18. Forsells, Magnus & Kenny, Geoff, 2002. "The rationality of consumers' inflation expectations: survey-based evidence for the euro area," Working Paper Series 0163, European Central Bank.
  19. Jeff Fuhrer & George Moore, 1993. "Inflation persistence," Finance and Economics Discussion Series 93-17, Board of Governors of the Federal Reserve System (U.S.).
  20. Angeloni Ignazio & Ehrmann Michael, 2007. "Euro Area Inflation Differentials," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-36, August.
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  22. Carlson, John A & Parkin, J Michael, 1975. "Inflation Expectations," Economica, London School of Economics and Political Science, vol. 42(166), pages 123-38, May.
  23. Roberts, John M., 1997. "Is inflation sticky?," Journal of Monetary Economics, Elsevier, vol. 39(2), pages 173-196, July.
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Cited by:
  1. Katarína Danišková & Jarko Fidrmuc, 2011. "Inflation Convergence and the New Keynesian, Phillips Curve in the Czech Republic," Working Papers 292, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies).
  2. Adolfo Sachsida & Marcio Ribeiro & Claudio Hamilton dos Santos, 2009. "A Curva de Phillips e a Experiência Brasileira," Discussion Papers 1429, Instituto de Pesquisa Econômica Aplicada - IPEA.
  3. 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 142, National Bank of Poland, Economic Institute.
  4. Tomasz Lyziak, 2014. "Inflation expectations in Poland, 2001–2013. Measurement and macroeconomic testing," National Bank of Poland Working Papers 178, National Bank of Poland, Economic Institute.
  5. 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.
  6. 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, vol. 14(4), pages 51-57, 01.
  7. Katarína Danišková & Jarko Fidrmuc, 2012. "Meta-Analysis of the New Keynesian Phillips Curve," Working Papers 314, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies).

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