Advanced Search
MyIDEAS: Login to save this paper or follow this series

The New Keynesian Phillips Curve revisited

Contents:

Author Info

  • Pål Boug
  • Ådne Cappelen
  • Anders Rygh Swensen

    ()
    (Statistics Norway)

Registered author(s):

    Abstract

    Recently, several authors have questioned the evidence claimed by Galí and Gertler (1999) and Galí, Gertler and López-Salido (2001) that a hybrid version of the New Keynesian Phillips Curve approximates European and US inflation dynamics quite well. We re-examine the evidence using likelihood-based methods. Although including lagged inflation enhances the empirical fit, the improvement is not large enough to yield a model that passes a likelihood ratio test. We also show that the likelihood surface is rather flat, especially in the European case, indicating that the model may be weakly identified as criticised by others using alternative methods.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.ssb.no/a/publikasjoner/pdf/DP/dp500.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 500.

    as in new window
    Length:
    Date of creation: Mar 2007
    Date of revision:
    Handle: RePEc:ssb:dispap:500

    Contact details of provider:
    Postal: P.O.Box 8131 Dep, N-0033 Oslo, Norway
    Phone: (+47) 21 09 00 00
    Fax: (+47) 21 09 49 73
    Email:
    Web page: http://www.ssb.no/en/
    More information through EDIRC

    Related research

    Keywords: European and US inflation; the New Keynesian Phillips Curve; vector autoregressive models and likelihood ratio tests.;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Roberts, John M, 1995. "New Keynesian Economics and the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 975-84, November.
    2. Luca Fanelli, 2006. "Testing the New Keynesian Phillips Curve through Vector Autoregressive models : Results from the Euro area," Quaderni di Dipartimento 0, Department of Statistics, University of Bologna.
    3. Jurgen A. Doornik, 1998. "Approximations To The Asymptotic Distributions Of Cointegration Tests," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 573-593, December.
    4. Frank Kleibergen, 2001. "Testing Parameters in GMM without Assuming that they are identified," Tinbergen Institute Discussion Papers 01-067/4, Tinbergen Institute.
    5. Jordi Galí & Mark Gertler & J. David López-Salido, 2001. "Robustness of the Estimates of the Hybrid New Keynesian Phillips Curve," Working Papers 44, Barcelona Graduate School of Economics.
    6. Sophocles Mavroeidis, 2004. "Weak Identification of Forward-looking Models in Monetary Economics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(s1), pages 609-635, 09.
    7. Taylor, John B, 1979. "Staggered Wage Setting in a Macro Model," American Economic Review, American Economic Association, vol. 69(2), pages 108-13, May.
    8. Lars Peter Hansen & Thomas J. Sargent, 1981. "Exact linear rational expectations models: specification and estimation," Staff Report 71, Federal Reserve Bank of Minneapolis.
    9. repec:nbr:nberre:0126 is not listed on IDEAS
    10. Gunnar Bardsen & Eilev S. Jansen & Ragnar Nymoen, 2004. "Econometric Evaluation of the New Keynesian Phillips Curve," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(s1), pages 671-686, 09.
    11. Nicoletta Batini, 2006. "Euro area inflation persistence," Empirical Economics, Springer, vol. 31(4), pages 977-1002, November.
    12. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
    13. Pål Boug & Ådne Cappelen & Anders Swensen, 2006. "Expectations and regime robustness in price formation: evidence from vector autoregressive models and recursive methods," Empirical Economics, Springer, vol. 31(4), pages 821-845, November.
    14. Sophocles Mavroeidis, 2006. "Testing the New Keynesian Phillips Curve Without Assuming Identification," Working Papers 2006-13, Brown University, Department of Economics.
    15. Galí, Jordi & Gertler, Mark & López-Salido, J David, 2001. "European Inflation Dynamics," CEPR Discussion Papers 2684, C.E.P.R. Discussion Papers.
    16. Søren Johansen & Anders Rygh Swensen, 2004. "More on testing exact rational expectations in cointegrated vector autoregressive models: Restricted constant and linear term," Econometrics Journal, Royal Economic Society, vol. 7(2), pages 389-397, December.
    17. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October.
    18. Johansen, Soren & Swensen, Anders Rygh, 1999. "Testing exact rational expectations in cointegrated vector autoregressive models," Journal of Econometrics, Elsevier, vol. 93(1), pages 73-91, November.
    19. Jeremy Rudd & Karl Whelan, 2001. "New tests of the New-Keynesian Phillips curve," Finance and Economics Discussion Series 2001-30, Board of Governors of the Federal Reserve System (U.S.).
    20. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
    21. James H. Stock & Jonathan Wright, 2000. "GMM with Weak Identification," Econometrica, Econometric Society, vol. 68(5), pages 1055-1096, September.
    22. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    23. Pål Boug & Ådne Cappelen & Anders Rygh Swensen, 2006. "The New Keynesian Phillips Curve for a Small Open Economy," Discussion Papers 460, Research Department of Statistics Norway.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Fanelli, Luca, 2008. "Evaluating the New Keynesian Phillips Curve under VAR-Based Learning," Economics Discussion Papers 2008-15, Kiel Institute for the World Economy.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:ssb:dispap:500. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (J Bruusgaard).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.