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Inflation dynamics and the New Keynesian Phillips Curve: an identification robust econometric analysis

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Author Info
DUFOUR, Jean-Marie Dufour
KHALAF, Lynda
KICHIAN, Maral

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Abstract

In this paper, we use identification-robust methods to assess the empirical adequacy of a New Keynesian Phillips Curve (NKPC) equation. We focus on the Gali and Gertler’s (1999) specification, on both U.S. and Canadian data. Two variants of the model are studied: one based on a rationalexpectations assumption, and a modification to the latter which consists in using survey data on inflation expectations. The results based on these two specifications exhibit sharp differences concerning: (i) identification difficulties, (ii) backward-looking behavior, and (ii) the frequency of price adjustments. Overall, we find that there is some support for the hybrid NKPC for the U.S., whereas the model is not suited to Canada. Our findings underscore the need for employing identificationrobust inference methods in the estimation of expectations-based dynamic macroeconomic relations.

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Paper provided by Universite de Montreal, Departement de sciences economiques in its series Cahiers de recherche with number 2005-17.

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Length: 26 pages
Date of creation: 2005
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Handle: RePEc:mtl:montde:2005-17

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Keywords: macroeconomics inflation dynamics New Keynesian Philli Curve identification robust inference weak instruments oimal instruments

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Find related papers by JEL classification:
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation
C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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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. Charlotta Groth & Hashmat Khan, . "Investment adjustment costs: evidence from UK and US industries," Bank of England working papers 332, Bank of England. [Downloadable!]
  2. Jean Imbs & Eric Jondeau & Florian Pelgrin, 2007. "Aggregating Phillips curves," Working Paper Series 785, European Central Bank. [Downloadable!]
    Other versions:
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