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The New Keynesian Phillips curve tested on OECD panel data

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  • Bjørnstad, Roger
  • Nymoen, Ragnar

Abstract

In their work, Galí, Gertler and Lopez-Salido, GGL, assert that the hybrid New Keynesian Phillips curve (NPC) with dominance of forward-looking behavior and real marginal costs is robust to choices of estimation procedure, details of variables definitions and choice of data samples. In an estimation on panel data from OECD countries we replicate the typical empirical NPC from country studies. However, we also test an alternative economic interpretation of the empirical correlations. Specifically we find that the expected rate of future inflation and real marginal costs serve as replacements for equilibrium correction terms that are implied by the general imperfect competition model of wage and price setting. As a explanatory model of OECD inflation, the NPC is encompassed by an existing theory. --

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Paper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2008-4.

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Date of creation: 2008
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Handle: RePEc:zbw:ifwedp:6988

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Keywords: New Keynesian Phillips Curve; forward-looking price setting; panel data model; encompassing;

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  1. Fuhrer, Jeffrey, 2006. "Intrinsic and Inherited Inflation Persistence," MPRA Paper 805, University Library of Munich, Germany.
  2. Luca Nunziata, 2005. "Institutions and Wage Determination: a Multi-country Approach," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(4), pages 435-466, 08.
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Cited by:
  1. Nymoen, Ragnar & Swensen, Anders Rygh & Tveter, Eivind, 2012. "Interpreting the evidence for New Keynesian models of inflation dynamics," Journal of Macroeconomics, Elsevier, Elsevier, vol. 34(2), pages 253-263.
  2. Pål Boug & Ådne Cappelen & Torbjørn Eika, 2013. "The importance of the distribution sector for exchange rate pass-through in a small open economy. A large scale macroeconometric modelling approach," Discussion Papers, Research Department of Statistics Norway 731, Research Department of Statistics Norway.
  3. Gomes, Orlando, 2012. "Thought experimentation and the Phillips curve," Research in Economics, Elsevier, Elsevier, vol. 66(1), pages 45-64.
  4. Christopher Tsoukis & George Kapetanios & Joseph Pearlman, 2011. "Elusive Persistence: Wage And Price Rigidities, The New Keynesian Phillips Curve And Inflation Dynamics," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 25(4), pages 737-768, 09.
  5. Lena Vogel, 2008. "The Relationship between the Hybrid New Keynesian Phillips Curve and the NAIRU over Time," Macroeconomics and Finance Series, Hamburg University, Department Wirtschaft und Politik 200803, Hamburg University, Department Wirtschaft und Politik.
  6. Jennifer L. Castle & Jurgen A. Doornik & David F. Hendry & Ragnar Nymoen, 2012. "Mis-specification Testing: Non-Invariance of Expectations Models of Inflation," Working Paper Series, The Rimini Centre for Economic Analysis 50_12, The Rimini Centre for Economic Analysis.
  7. Filiz Yesilyurt & J. Elhorst, 2014. "A regional analysis of inflation dynamics in Turkey," The Annals of Regional Science, Springer, Springer, vol. 52(1), pages 1-17, January.
  8. Ordóñez, Javier & Jusélius, Katarina, 2009. "Balassa-Samuelson and Wage, Price and Unemployment Dynamics in the Spanish Transition to EMU Membership," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 3(4), pages 1-30.
  9. Boug, Pål & Cappelen, Adne & Swensen, Anders Rygh, 2010. "The new Keynesian Phillips curve revisited," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 34(5), pages 858-874, May.

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