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Testing the New Keynesian Phillips curve through Vector Autoregressive models: Results from the Euro area

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  • Fanelli, Luca

Abstract

This paper addresses the issue of testing the 'hybrid' New Keynesian Phillips Curve (NKPC) through Vector Autoregressive (VAR) systems and likelihood methods, giving special emphasis to the case where variables are non stationary. The idea is to use a VAR for both the inflation rate and the explanatory variable(s) to approximate the dynamics of the system and derive testable restrictions. Attention is focused on the 'inexact' formulation of the NKPC. Empirical results over the period 1971-1998 show that the NKPC is far from being a `good first approximation' of inflation dynamics in the Euro area.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 1617.

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Date of creation: Jan 2005
Date of revision: Jan 2007
Handle: RePEc:pra:mprapa:1617

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Keywords: Inflation dynamics; Forecast model; New Keynesian Phillips Curve; Forward-looking behavior; VAR expectations;

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References

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