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The New Keynesian Phillips Curve: An Empirical Assessment

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  • Florian PELGRIN
  • GUAY Alain
  • LUGER Richard

Abstract

The recent works of Gali and Gertler (1999) and Gali, Gertler, and Lopez-Salido (2001) provided evidence supporting the NKPC for the United States and the euro area. However, several econometric problems have been discussed in the literature on the empirical relevance of their results (among others, see Rudd and Whelan, 2003; Lindé, 2003; Nason and Smith, 2003). This paper reexamines the empirical relevance of the NKPC for the United States. In particular, we address several important econometric issues related to the estimation and inference procedures typically used for NKPC models. These include the potential bias of GMM estimates in the presence of many instruments, the low power of specification tests based on overidentifying restrictions, and issues related to the estimation of the variance-covariance matrix. In order to mitigate these problems, we estimate various other specifications of the NKPC using the continuously-updated GMM estimator (CUE) developed by Hansen, Heaton and Yaron (1996) and the 3-step GMM estimator of Bonnal and Renault (2001, 2003). These two estimators have better finite-sample properties compared to usual two-step GMM estimator. Our results show that the empirical evidence of the real marginal cost in the NKPC is rather mixed and that the backward-looking component plays a significant role. These results are robust using different sample periods, different measures of inflation and marginal costs.

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Bibliographic Info

Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2004 with number 212.

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Date of creation: 11 Aug 2004
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Handle: RePEc:sce:scecf4:212

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Keywords: Phillips curve; Inflation dynamics; GMM;

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References

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Cited by:
  1. Imbs, Jean & Jondeau, Eric & Pelgrin, Florian, 2007. "Aggregating Phillips Curves," CEPR Discussion Papers 6184, C.E.P.R. Discussion Papers.
  2. Janko Gorter, 2005. "Subjective Expectations and New Keynesian Phillips Curves in Europe," DNB Working Papers 049, Netherlands Central Bank, Research Department.
  3. Mohamed Boutahar & David Gbaguidi, 2009. "Which Econometric Specification to Characterize the U.S. Inflation Rate Process?," Computational Economics, Society for Computational Economics, vol. 34(2), pages 145-172, September.
  4. Agénor, Pierre-Richard & Bayraktar, Nihal, 2010. "Contracting models of the Phillips curve empirical estimates for middle-income countries," Journal of Macroeconomics, Elsevier, vol. 32(2), pages 555-570, June.
  5. Frode Brevik & Manfred Gärtner, 2005. "Partisan Theory and the New Keynesian and Sticky-Information Phillips Curves," University of St. Gallen Department of Economics working paper series 2005 2005-25, Department of Economics, University of St. Gallen.
  6. Fabio Rumler, 2007. "Estimates of the Open Economy New Keynesian Phillips Curve for Euro Area Countries," Open Economies Review, Springer, vol. 18(4), pages 427-451, September.

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