Estimates of the US Phillips curve with the general to specific method
AbstractThis paper distinguishes between the long run and short run Phillips curve (PC) and uses the micro theory based specification, with forward looking expectations, for the long run PC. The long run and the implied short run dynamic equations are estimated in one step with the general to specific method (GETS). Our approach has two distinct advantages. Firstly, classical estimation methods can be used, irrespective of the stationarity properties of the variables. Secondly, instead of arbitrarily adding the lagged inflation rate to the theory based long run PC to capture persistence in inflation, our approach shows that persistence effects can also be captured through the dynamic adjustment equations. This has an added advantage because it offers a more flexible lag structure to estimate dynamic adjustments compared to the partial adjustment process in the hybrid NKPC.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 28411.
Date of creation: 16 Jan 2011
Date of revision:
US New Keynesian Phillips Curve; Forward looking expectations; Alternative measures of the Driving Forces; GETS;
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-05 (All new papers)
- NEP-CBA-2011-02-05 (Central Banking)
- NEP-MAC-2011-02-05 (Macroeconomics)
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