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Interpreting the evidence for New Keynesian models of inflation dynamics

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  • Nymoen, Ragnar

    ()
    (Dept. of Economics, University of Oslo)

  • Rygh Swensen, Anders

    (Dept. og Mathematics, University of Oslo)

  • Tveter, Eivind

    (Statistics Norway)

Abstract

We present a framework for interpretation of the empirical results of New Keynesian models of inflation dynamics. Both the rational expectations solution of the structural New Keynesian Phillips curve, NKPC, and the reduced form VAR analysis of the multivariate time series properties give insight about the joint implications of the evidence in the NKPC literature. For example, we show that the unit-root form of non-stationary may be implied for inflation even though the econometric model initally assumed stationarity. We point out and suggest a correction to an error in the literature regarding the existence or not of a rational expectations solution in the case of homogeneity and forward-dominance.

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Bibliographic Info

Paper provided by Oslo University, Department of Economics in its series Memorandum with number 23/2011.

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Length: 18 pages
Date of creation: 19 Jul 2011
Date of revision:
Handle: RePEc:hhs:osloec:2011_023

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Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Phone: 22 85 51 27
Fax: 22 85 50 35
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Web page: http://www.oekonomi.uio.no/indexe.html
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Keywords: New Keynesian Phillips Curve; forward-looking price setting; rational expectations; VAR model;

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Cited by:
  1. Sophocles Mavroeidis & Mikkel Plagborg-Møller & James H. Stock, 2014. "Empirical Evidence on Inflation Expectations in the New Keynesian Phillips Curve," Journal of Economic Literature, American Economic Association, vol. 52(1), pages 124-88, March.

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