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Autoregression-Based Estimation of the New Keynesian Phillips Curve

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  • Lanne, Markku
  • Luoto, Jani

Abstract

We propose an estimation method of the new Keynesian Phillips curve (NKPC) based on a univariate noncausal autoregressive model for the inflation rate. By construction, our approach avoids a number of problems related to the GMM estimation of the NKPC. We estimate the hybrid NKPC with quarterly U.S. data (1955:1-2010:3), and both expected future inflation and lagged inflation are found important in determining the inflation rate, with the former clearly dominating. Moreover, inflation persistence turns out to be intrinsic rather than inherited from a persistent driving process.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 29801.

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Date of creation: Mar 2011
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Handle: RePEc:pra:mprapa:29801

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Keywords: Noncausal time series; Non-Gaussian time series; inflation; Phillips curve;

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  1. Lanne, Markku & Saikkonen, Pentti, 2010. "Noncausal autoregressions for economic time series," MPRA Paper 32943, University Library of Munich, Germany.
  2. Breid, F. Jay & Davis, Richard A. & Lh, Keh-Shin & Rosenblatt, Murray, 1991. "Maximum likelihood estimation for noncausal autoregressive processes," Journal of Multivariate Analysis, Elsevier, Elsevier, vol. 36(2), pages 175-198, February.
  3. Jeff Fuhrer, 2005. "Intrinsic and inherited inflation persistence," Working Papers, Federal Reserve Bank of Boston 05-8, Federal Reserve Bank of Boston.
  4. Argia M. Sbordone, 2007. "Inflation persistence: alternative interpretations and policy implications," Staff Reports, Federal Reserve Bank of New York 286, Federal Reserve Bank of New York.
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  7. Gali, Jordi & Gertler, Mark & David Lopez-Salido, J., 2005. "Robustness of the estimates of the hybrid New Keynesian Phillips curve," Journal of Monetary Economics, Elsevier, Elsevier, vol. 52(6), pages 1107-1118, September.
  8. Lanne, Markku & Saikkonen, Pentti, 2009. "GMM Estimation with Noncausal Instruments," MPRA Paper 23649, University Library of Munich, Germany.
  9. Markku Lanne & Arto Luoma & Jani Luoto, 2012. "Bayesian Model Selection And Forecasting In Noncausal Autoregressive Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 27(5), pages 812-830, 08.
  10. Andreas Beyer & Roger E. A. Farmer & Jérôme Henry & Massimiliano Marcellino, 2007. "Factor Analysis in a Model with Rational Expectations," NBER Working Papers 13404, National Bureau of Economic Research, Inc.
  11. James M. Nason & Gregor W. Smith, 2005. "Identifying the New Keynesian Phillips Curve," Working Papers, Queen's University, Department of Economics 1026, Queen's University, Department of Economics.
  12. Jeremy Rudd & Karl Whelan, 2005. "Modelling inflation dynamics: a critical review of recent research," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2005-66, Board of Governors of the Federal Reserve System (U.S.).
  13. Koop, Gary & Onorante, Luca, 2012. "Estimating Phillips curves in turbulent times using the ECB's survey of professional forecasters," Working Paper Series, European Central Bank 1422, European Central Bank.
  14. Lanne, Markku & Luoto, Jani & Saikkonen, Pentti, 2010. "Optimal Forecasting of Noncausal Autoregressive Time Series," MPRA Paper 23648, University Library of Munich, Germany.
  15. Stephen G. Cecchetti & Guy Debelle, 2006. "Has the inflation process changed?," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 21(46), pages 311-352, 04.
  16. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(3), pages 383-398, September.
  17. Andrews, Beth & Davis, Richard A. & Jay Breidt, F., 2006. "Maximum likelihood estimation for all-pass time series models," Journal of Multivariate Analysis, Elsevier, Elsevier, vol. 97(7), pages 1638-1659, August.
  18. James M. Nason & Gregor W. Smith, 2008. "The New Keynesian Phillips curve : lessons from single-equation econometric estimation," Economic Quarterly, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue Fall, pages 361-395.
  19. Frank Schorfheide, 2008. "DSGE model-based estimation of the New Keynesian Phillips curve," Economic Quarterly, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue Fall, pages 397-433.
  20. Koop, Gary & Onorante, Luca, 2011. "Estimating Phillips Curves in Turbulent Times using the ECB’s Survey of Professional Forecasters," SIRE Discussion Papers, Scottish Institute for Research in Economics (SIRE) 2011-19, Scottish Institute for Research in Economics (SIRE).
  21. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 1029-54, July.
  22. Basistha, Arabinda & Nelson, Charles R., 2007. "New measures of the output gap based on the forward-looking new Keynesian Phillips curve," Journal of Monetary Economics, Elsevier, Elsevier, vol. 54(2), pages 498-511, March.
  23. Jeremy Rudd & Karl Whelan, 2001. "New tests of the New-Keynesian Phillips curve," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2001-30, Board of Governors of the Federal Reserve System (U.S.).
  24. Rudd, Jeremy & Whelan, Karl, 2005. "Does Labor's Share Drive Inflation?," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 37(2), pages 297-312, April.
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Cited by:
  1. Nyberg , Henri & Saikkonen, Pentti, 2012. "Forecasting with a noncausal VAR model," Research Discussion Papers, Bank of Finland 33/2012, Bank of Finland.

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