Testing the Invariance of Expectations Models of Inflation
AbstractThe new-Keynesian Phillips curve (NKPC) includes expected future inflation as a major feedforward variable to explain current inflation.� Models of this type are regularly estimated by replacing the expected value by the actual future outcome, then using Instrumental Variables or Generalized Method of Moments methods to estimate the parameters.� However, the underlying theory does not allow for various forms of non-stationarity in the data - despite the fact that crises, breaks and regimes shifts are relatively common.� We investigate the consequences for NKPC estimation of breaks in data processes using the new technique of impulse-indicator saturation, and apply the resulting methods to salient published studies to check their viablility.
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Bibliographic InfoPaper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 510.
Date of creation: 01 Nov 2010
Date of revision:
New-Keynesian Phillips curve; inflation expectations; structural breaks; impulse-indicator saturation;
Other versions of this item:
- Nymoen, Ragnar & L. Castle, Jennifer & A. Doornik, Jurgen & F. Hendry, David, 2010. "Testing the Invariance of Expectations Models of Inflation," Memorandum 21/2010, Oslo University, Department of Economics.
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-11-20 (All new papers)
- NEP-CBA-2010-11-20 (Central Banking)
- NEP-ECM-2010-11-20 (Econometrics)
- NEP-MON-2010-11-20 (Monetary Economics)
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