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ML vs GMM Estimates of Hybrid Macroeconomic Models (With an Application to the "New Phillips Curve")

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Author Info
Eric JONDEAU (Banque de France and ERUDITE Universite Paris 12 Val-de-Marne)
Herve LE BIHAN (Banque de France)

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Abstract

Many macroeconomic models (including the NKPC - "New Keynesian" Phillips Curve) involve hybrid equations, in which some variables depend on both their lags and leads. Hybrid models have produced conflicting empirical results: GMM (respectively ML) estimation find the forward- looking component to be large (small). A rationalization for this conflict is provided, allowing for two kinds of misspecifications (omitted dynamics and measurement error): we show analytically in a simple DGP that the GMM (ML) estimator overstates (understates) the size of the forward- looking component. Monte-Carlo experiments indicate this result has some generality. We use these findings to rationalize discrepancies observed in NKPC estimates.

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Paper provided by EconWPA in its series Econometrics with number 0303006.

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Length: 43 pages
Date of creation: 06 Mar 2003
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Handle: RePEc:wpa:wuwpem:0303006

Note: Type of Document - Scientific Workplace; prepared on PC; to print on ; pages: 43 ; figures: included. This paper does not necessarily reflect the views of the Banque de France.
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Related research
Keywords: Rational-expectation model; GMM estimator; ML estimator; Inflation; New Phillips curve.;

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Find related papers by JEL classification:
C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - General
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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Full references

Cited by:
(explanations, 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.)

  1. Beyer, Andreas & Farmer, Roger E A & Henry, Jérôme & Marcellino, Massimiliano, 2005. "Factor Analysis in a New-Keynesian Model," CEPR Discussion Papers 5266, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Sophocles Mavroeidis, 2006. "Testing the New Keynesian Phillips Curve Without Assuming Identification," Working Papers 2006-13, Brown University, Department of Economics. [Downloadable!]
  3. Tillmann, Peter, 2005. "The New Keynesian Phillips Curve in Europe : does it fit or does it fail?," Discussion Paper Series 1: Economic Studies 2005,04, Deutsche Bundesbank, Research Centre. [Downloadable!]
  4. Andreas Beyer & Roger E. A. Farmer & Jérôme Henry & Massimiliano Marcellino, 2007. "Factor Analysis in a Model with Rational Expectations," NBER Working Papers 13404, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Florian PELGRIN & Alain GUAY & Richard LUGER, 2004. "The New Keynesian Phillips Curve: An empirical assessment," Econometric Society 2004 North American Summer Meetings 418, Econometric Society. [Downloadable!]
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  6. Ieva Rubene & Paolo Guarda, 2004. "The New Keynesian Phillips Curve: Empirical Results For Luxembourg," BCL working papers cahier_etude_11, Central Bank of Luxembourg. [Downloadable!]
  7. André Kurmann, 2004. "Maximum Likelihood Estimation of Dynamic Stochastic Theories with an Application to New Keynesian Pricing," Macroeconomics 0409028, EconWPA. [Downloadable!]
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  8. Fabio Milani, 2005. "Adaptive Learning and Inflation Persistence," Working Papers 050607, University of California-Irvine, Department of Economics. [Downloadable!]
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  9. Hasan Bakhshi & Hashmat Khan & Barbara Rudolf, . "The Phillips curve under state-dependent pricing," Bank of England working papers 227, Bank of England. [Downloadable!]
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