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Subjective Expectations and New Keynesian Phillips Curves in Europe

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  • Janko Gorter

Abstract

This paper assesses the empirical performance of the forward-looking new Keynesian Phillips curve (NKPC) in France, Germany and Italy for the period 1991.3-2004.4. Instead of imposing rational expectations, I use direct measures of inflation expectations constructed from Consensus Economics survey data. Dependent on the real marginal costs measure, I obtain significant and plausible estimates for the quarterly discount factor and the price rigidity parameter. When analyzing the role of lagged inflation, I find that only in France lagged inflation does not have explanatory power beyond predicting expected inflation. This suggests that only in France the standard forward-looking NKPC effectively captures quarterly inflation dynamics.

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Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 049.

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Date of creation: Aug 2005
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Handle: RePEc:dnb:dnbwpp:049

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Keywords: Inflation; Phillips Curve; Subjective Expectations;

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Cited by:
  1. Büyükkarabacak, Berrak & Mykhaylova, Olena, 2010. "Housing market dynamics and welfare," MPRA Paper 23322, University Library of Munich, Germany.
  2. Maritta Paloviita, 2008. "Comparing alternative Phillips curve specifications: European results with survey-based expectations," Applied Economics, Taylor & Francis Journals, vol. 40(17), pages 2259-2270.

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