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The use of real-time information in Phillips curve relationships for the euro area

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Author Info
Paloviita, Maritta
Mayes, David

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Abstract

The dynamics of the Phillips Curve in New Keynesian, Expectations Augmented and Hybrid forms are extremely sensitive to the choice, timing and restrictions on variables. An important element of the debate revolves round what information decision-makers took into account at the time and round what they thought was going to happen in the future. The original debate was conducted using up to date, revised estimates of the data as in the most recent official publications. In this paper, however, we explore how much three aspects of the specification of the information available at the time affect the performance of the various Phillips curves and the choice of the most appropriate dynamic structures. First we consider the performance of forecasts, published at the time, as representations of expectations. Second, we explore the impact of using 'real time data' in the sense of what were the most recently available estimates of the then present and past. Finally we review whether it helps to use the information that was available at the time in the choice of instruments in the estimation of the relationships rather than the most up to date estimate of the data series that has been published. Thus different datasets are required in the instrument set for every time period. We use a single consistent source for 'real-time' data on the past, estimates of the present and forecasts, from OECD Economic Outlook and National Accounts. We set this up as a panel for the euro area countries covering the period since 1977. The OECD publishes forecasts twice a year, which permits a more detailed exploration of the importance of the timing of information. Our principal conclusions are (1) that the most important use of real time information in the estimation of the Phillips curve is in using forecasts made at the time to represent expectations; (2) real time data indicate that the balance of expectations formation was more forward than backward-looking; (3) by contrast using the most recent, revised, data suggests more backward-looking and less well-determined behaviour. --

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Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2004,28.

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Date of creation: 2004
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Handle: RePEc:zbw:bubdp1:2294

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Keywords: real-time data; Phillips curve; euro area;

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Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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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. Hyytinen, Ari & Takalo , Tuomas, 2004. "Multihoming in the market for payment media: evidence from young Finnish consumers," Research Discussion Papers 25/2004, Bank of Finland. [Downloadable!]
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  2. Leitemo, Kai & Söderström , Ulf, 2004. "Robust monetary policy in the New-Keynesian framework," Research Discussion Papers 31/2004, Bank of Finland. [Downloadable!]
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  3. Puhakka, Mikko, 2004. "Equilibrium dynamics under lump-sum taxation in an exchange economy with skewed endowments," Research Discussion Papers 29/2004, Bank of Finland. [Downloadable!]
  4. Mikko Puhakka, 2005. "Equilibrium dynamics under lump-sum taxation in an exchange economy with skewed endowments," Macroeconomics 0508033, EconWPA. [Downloadable!]
  5. Männistö , Hanna-Leena, 2005. "Forecasting with a forward-looking DGE model: combining long-run views of financial markets with macro forecasting," Research Discussion Papers 21/2005, Bank of Finland. [Downloadable!]
  6. Maritta Paloviita & Matti Virén, 2005. "The role of expectations in the inflation process in the euro area," Macroeconomics 0508031, EconWPA. [Downloadable!]
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  7. Suvanto , Antti & Hukkinen , Juhana, 2004. "Stable price level and changing prices," Research Discussion Papers 28/2004, Bank of Finland. [Downloadable!]
  8. Jokivuolle , Esa & Lanne , Markku, 2004. "Trading Nokia: The roles of the Helsinki vs the New York stock exchanges," Research Discussion Papers 26/2004, Bank of Finland. [Downloadable!]
  9. Sophocles N. Brissimis & Nicholas S. Magginas, 2008. "Inflation Forecasts and the New Keynesian Phillips Curve," International Journal of Central Banking, International Journal of Central Banking, vol. 4(2), pages 1-22, June. [Downloadable!]
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  10. Mälkönen , Ville, 2004. "The efficiency implications of financial conglomeration," Research Discussion Papers 17/2004, Bank of Finland. [Downloadable!]
  11. Antti Suvanto & Juhana Hukkinen, 2005. "Stable price level and changing prices," Macroeconomics 0508034, EconWPA. [Downloadable!]
  12. Paloviita, Maritta, 2007. "Estimating a small DSGE model under rational and measured expectations: some comparisons," Research Discussion Papers 14/2007, Bank of Finland. [Downloadable!]
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