Pål Boug, Ådne Cappelen and Anders Rygh Swensen () (Statistics Norway)
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.
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Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number
500.
Find related papers by JEL classification: C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
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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.:
Jordi Gali & Mark Gertler & J. David Lopez-Salido, 2001.
"European Inflation Dynamics,"
NBER Working Papers
8218, National Bureau of Economic Research, Inc.
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