A Simple Test of the New Keynesian Phillips Curve
AbstractWe propose a way to test the New Keynesian Phillips Curve (NKPC) without estimating the structural parameters governing the curve, i.e. price stickiness and firms' backwardness. Using this strategy we can test the NKPC avoiding the identification problems related to the GMM approach. We find that it does not exist a combination of the structural parameters which is consistent with US data. This result does not necessarily imply that the idea of a forward looking price setting behaviour should be entirely disregarded, as the rejection might be due to the failure of the joint hypothesis of rational expectations. Thus further research should be aimed at providing alternative models for agents' expectations.
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Bibliographic InfoPaper provided by Queen Mary, University of London, School of Economics and Finance in its series Working Papers with number 592.
Date of creation: Mar 2007
Date of revision:
VARs; Inflation; Phillips curve;
Other versions of this item:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-10 (All new papers)
- NEP-CBA-2007-03-10 (Central Banking)
- NEP-MAC-2007-03-10 (Macroeconomics)
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