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Identification-Robust Minimum Distance Estimation of the New Keynesian Phillips Curve

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Author Info

  • Leandro M. Magnusson

    ()
    (Department of Economics, Tulane University)

  • Sophocles Mavroeidis

    ()
    (Department of Economics, Brown University)

Abstract

Limited-information identification-robust methods on the indexation and price rigidity parameters of the new Keynesian Phillips curve yield very wide confidence intervals. Full-information methods impose more restrictions on the reduced-form dynamics, and thus make more efficient use of the information in the data. We propose identification-robust minimum distance methods for exploiting these additional restrictions and show that they yield considerably smaller confidence intervals for the coefficients of the model compared to their limited-information GMM counterparts. In contrast to previous studies that used GMM, we find evidence of partial but not full indexation, and we obtain sharper inference on the degree of price stickiness.

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File URL: http://econ.tulane.edu/RePEc/pdf/tul0904.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by Tulane University, Department of Economics in its series Working Papers with number 0904.

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Length: 20 pages
Date of creation: Feb 2009
Date of revision:
Handle: RePEc:tul:wpaper:0904

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Keywords: weak identification; minimum distance; GMM; Phillips curve;

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Cited by:
  1. Hyeongwoo Kim & Masao Ogaki, 2011. "Purchasing Power Parity and the Taylor Rule," Auburn Economics Working Paper Series auwp2011-02, Department of Economics, Auburn University.
  2. Antonio Diez de los Rios, 2013. "A New Linear Estimator for Gaussian Dynamic Term Structure Models," Working Papers 13-10, Bank of Canada.
  3. Mariano Kulish & Adrian Pagan, 2013. "Issues in Estimating New-Keynesian Phillips Curves in the Presence of Unknown Structural Change," RBA Research Discussion Papers rdp2013-11, Reserve Bank of Australia.
  4. Dufour, Jean-Marie & Khalaf, Lynda & Kichian, Maral, 2013. "Identification-robust analysis of DSGE and structural macroeconomic models," Journal of Monetary Economics, Elsevier, vol. 60(3), pages 340-350.

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