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The New Keynesian Phillips Curve in an Emerging Market Economy: The Case of Chile

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Author Info
Luis F. Céspedes
Marcelo Ochoa
Claudio Soto

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Abstract

This paper presents GMM empirical estimations of the New Keynesian Phillips curve (NKPC) for Chile. Our results tend to support the hybrid version of the NKPC, with an estimated backward-looking coefficient of about 0.4. The estimated Calvo coefficient, that captures the degree of price rigidity, assuming firm specific capital is about 0.65. This implies that prices are optimally adjusted on average every 3 quarters, approximately. Our results also indicate the existence of a structural break in the NKPC, which occurred when the inflation target converged to its long-run level (around 2000). We find evidence that the frequency of optimal price adjustment and the degree of indexation to past inflation have decreased over time.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 355.

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Date of creation: Dec 2005
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Handle: RePEc:chb:bcchwp:355

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, vol. 50(1), pages 155-183, February. [Downloadable!] (restricted)
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  2. Jeremy Rudd & Karl Whelan, 2003. "Can rational expectations sticky-price models explain inflation dynamics?," Finance and Economics Discussion Series 2003-46, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  3. Ghysels, Eric & Hall, Alastair, 1990. "A Test for Structural Stability of Euler Conditions Parameters Estimated via the Generalized Method of Moments Estimator," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 355-64, May. [Downloadable!] (restricted)
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  4. Jose De Gregorio, 2004. "Economic Growth in Chile: Evidence, Sources and Prospects," Working Papers Central Bank of Chile 298, Central Bank of Chile. [Downloadable!]
  5. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November. [Downloadable!] (restricted)
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  7. Sbordone, A.M., 1998. "Prices and Unit Labor Costs: a New Test of Price Stickiness," Papers 653, Stockholm - International Economic Studies.
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  8. Gagnon, Edith & Khan, Hashmat, 2005. "New Phillips curve under alternative production technologies for Canada, the United States, and the Euro area," European Economic Review, Elsevier, vol. 49(6), pages 1571-1602, August. [Downloadable!] (restricted)
  9. Pierpaolo Benigno & J. David Lopez-Salido, 2002. "Inflation persistence and optimal monetary policy in the Euro area," Working Paper Series 178, European Central Bank. [Downloadable!]
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  10. Sowell, Fallaw, 1996. "Optimal Tests for Parameter Instability in the Generalized Method of Moments Framework," Econometrica, Econometric Society, vol. 64(5), pages 1085-1107, September. [Downloadable!] (restricted)
  11. Ghysels, E. & Guay, A. & Hall, A., 1995. "Predictive Tests for Structural Change with Unknown Breakpoint," Cahiers de recherche 9524, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
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  12. Devereux, Michael B & Yetman, James, 2001. "Predetermined Prices and the Persistent Effects of Money on Output," CEPR Discussion Papers 2917, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  13. Erceg, Christopher J. & Levin, Andrew T., 2003. "Imperfect credibility and inflation persistence," Journal of Monetary Economics, Elsevier, vol. 50(4), pages 915-944, May. [Downloadable!] (restricted)
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  14. Lynda Khalaf & Maral Kichian, 2004. "Estimating New Keynesian Phillips Curves Using Exact Methods," Working Papers 04-11, Bank of Canada. [Downloadable!]
  15. Caner, Mehmet & Hansen, Bruce E., 2004. "Instrumental Variable Estimation Of A Threshold Model," Econometric Theory, Cambridge University Press, vol. 20(05), pages 813-843, October. [Downloadable!]
  16. Jeremy Rudd & Karl Whelan, 2001. "New tests of the New-Keynesian Phillips Curve," Finance and Economics Discussion Series 2001-30, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  17. Peter McAdam & Alpo Willman, 2003. "New Keynesian Phillips curves - a reassessment using euro-area data," Working Paper Series 265, European Central Bank. [Downloadable!]
  18. Luis F. Céspedes & Claudio Soto, 2005. "Credibility and Inflation Targeting in an Emerging Market: Lessons from the Chilean Experience," International Finance, Blackwell Publishing, vol. 8(3), pages 545-575, December. [Downloadable!] (restricted)
  19. Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 518-29, October.
  20. Gali, Jordi & Gertler, Mark & Lopez-Salido, J. David, 2001. "European inflation dynamics," European Economic Review, Elsevier, vol. 45(7), pages 1237-1270. [Downloadable!] (restricted)
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  21. Fuhrer, Jeff & Moore, George, 1995. "Inflation Persistence," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 127-59, February. [Downloadable!] (restricted)
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  22. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September. [Downloadable!] (restricted)
  23. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper 0107, Federal Reserve Bank of Cleveland. [Downloadable!]
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  24. Diebold, Francis X & Mariano, Roberto S, 1995. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 253-63, July.
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  25. Calvo, Guillermo A. & Mendoza, Enrique, 1998. "Empirical Puzzles of Chilean Stabilization Policy," Working Papers 98-02, Duke University, Department of Economics. [Downloadable!]
  26. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-56, July. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Juan de Dios Tena & Jorge Dresdner & Ivan Araya, 2007. "A multimarket approach to estimate a New Keynesian Phillips Curve," Statistics and Econometrics Working Papers ws076917, Universidad Carlos III, Departamento de Estadística y Econometría. [Downloadable!]
  2. Pablo Pincheira & Álvaro García, 2007. "Oil Shocks and Inflation The Case of Chile and a Sample of Industrial Countries," Working Papers Central Bank of Chile 413, Central Bank of Chile. [Downloadable!]
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  3. Lavan Mahadeva & Juan Carlos parra, 2008. "Testing a DSGE model and its partner database," BORRADORES DE ECONOMIA 004507, BANCO DE LA REPÚBLICA. [Downloadable!]
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  4. Pierre-Richard Agénor & Nihal Bayraktar, 2008. "Contracting Models of the Phillips Curve Empirical Estimates for Middle-Income Countries," Centre for Growth and Business Cycle Research Discussion Paper Series 94, Economics, The Univeristy of Manchester. [Downloadable!]
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