Advanced Search
MyIDEAS: Login to save this paper or follow this series

Testing the New Keynesian Model on U.S. and Euro Area Data

Contents:

Author Info

  • Juselius, Mikael

Abstract

I apply the Johansen and Swensen (1999, 2004) method of testing exact rational expectations within the cointegrated VAR (Vector Auto-Regressive) model, to testing the New Keynesian (NK) model. This method permits the testing of rational expectation systems, while allowing for non-stationary data. The NK-model is tested on quarterly U.S. and Euro area time series data. I find that the restrictions implied by the core equations of the NK-model are rejected regardless of sample periods or measures of real marginal costs. I also provide a tentative explanation of the results favored by previous researches. --

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.economics-ejournal.org/economics/discussionpapers/2008-23
Download Restriction: no

File URL: http://econstor.eu/bitstream/10419/17995/1/dp2008-23.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2008-23.

as in new window
Length:
Date of creation: 2008
Date of revision:
Handle: RePEc:zbw:ifwedp:7285

Contact details of provider:
Postal: Kiellinie 66, D-24105 Kiel
Phone: +49 431 8814-1
Fax: +49 431 8814528
Email:
Web page: http://www.economics-ejournal.org/
More information through EDIRC

Related research

Keywords: New Keynesian Phillips curve; cointegration; vector autoregressive model;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Jordi Galí & Mark Gertler & David López-Salido, 2005. "Robustness of the Estimates of the Hybrid New Keynesian Phillips Curve," Banco de Espa�a Working Papers 0520, Banco de Espa�a.
  2. McCallum, Bennett T & Nelson, Edward, 1999. "An Optimizing IS-LM Specification for Monetary Policy and Business Cycle Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 31(3), pages 296-316, August.
  3. Sbordone, Argia, 1998. "Prices and Unit Labor Costs: A New Test of Price Stickiness," Seminar Papers, Stockholm University, Institute for International Economic Studies 653, Stockholm University, Institute for International Economic Studies.
  4. Matheson, Troy D., 2008. "Phillips curve forecasting in a small open economy," Economics Letters, Elsevier, Elsevier, vol. 98(2), pages 161-166, February.
  5. Dees, Stephane & Pesaran, M. Hashem & Smith, L. Vanessa & Smith, Ron P., 2008. "Identification of New Keynesian Phillips Curves from a Global Perspective," IZA Discussion Papers 3298, Institute for the Study of Labor (IZA).
  6. Timothy Cogley & Thomas Sargent, . "Drifts and Volatilities: Monetary Policies and Outcomes in the Post WWII US," Working Papers, Department of Economics, W. P. Carey School of Business, Arizona State University 2133503, Department of Economics, W. P. Carey School of Business, Arizona State University.
  7. Fuhrer, Jeffrey C. & Rudebusch, Glenn D., 2004. "Estimating the Euler equation for output," Journal of Monetary Economics, Elsevier, Elsevier, vol. 51(6), pages 1133-1153, September.
  8. Gali, Jordi & Gertler, Mark & Lopez-Salido, J. David, 2001. "European inflation dynamics," European Economic Review, Elsevier, Elsevier, vol. 45(7), pages 1237-1270.
  9. Svensson, Lars E.O., 1998. "Open-Economy Inflation Targeting," Seminar Papers, Stockholm University, Institute for International Economic Studies 638, Stockholm University, Institute for International Economic Studies.
  10. Fanelli, Luca, 2005. "Testing the New Keynesian Phillips curve through Vector Autoregressive models: Results from the Euro area," MPRA Paper 1617, University Library of Munich, Germany, revised Jan 2007.
  11. Linde, Jesper, 2005. "Estimating New-Keynesian Phillips curves: A full information maximum likelihood approach," Journal of Monetary Economics, Elsevier, Elsevier, vol. 52(6), pages 1135-1149, September.
  12. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, Econometric Society, vol. 48(5), pages 1305-11, July.
  13. Altug, Sumru, 1989. "Time-to-Build and Aggregate Fluctuations: Some New Evidence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 889-920, November.
  14. Peter N. Ireland, 2004. "Technology Shocks in the New Keynesian Model," NBER Working Papers 10309, National Bureau of Economic Research, Inc.
  15. Sbordone, Argia M., 2005. "Do expected future marginal costs drive inflation dynamics?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 52(6), pages 1183-1197, September.
  16. Fuhrer, Jeffrey C, 1997. "The (Un)Importance of Forward-Looking Behavior in Price Specifications," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 29(3), pages 338-50, August.
  17. Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," NBER Working Papers 7147, National Bureau of Economic Research, Inc.
  18. Erceg, Christopher J. & Henderson, Dale W. & Levin, Andrew T., 2000. "Optimal monetary policy with staggered wage and price contracts," Journal of Monetary Economics, Elsevier, Elsevier, vol. 46(2), pages 281-313, October.
  19. Christina D. Romer & David H. Romer, 2003. "Choosing the Federal Reserve Chair: Lessons from History," NBER Working Papers 10161, National Bureau of Economic Research, Inc.
  20. Peter Tillmann, 2009. "The New Keynesian Phillips curve in Europe: does it fit or does it fail?," Empirical Economics, Springer, Springer, vol. 37(3), pages 463-473, December.
  21. Roberts John M., 2005. "How Well Does the New Keynesian Sticky-Price Model Fit the Data?," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 5(1), pages 1-39, September.
  22. Batini, Nicoletta & Jackson, Brian & Nickell, Stephen, 2005. "An open-economy new Keynesian Phillips curve for the U.K," Journal of Monetary Economics, Elsevier, Elsevier, vol. 52(6), pages 1061-1071, September.
  23. Campbell, John Y & Shiller, Robert J, 1987. "Cointegration and Tests of Present Value Models," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 95(5), pages 1062-88, October.
  24. Jordi Gal� & Tommaso Monacelli, 2005. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 707-734.
  25. Ma, Adrian, 2002. "GMM estimation of the new Phillips curve," Economics Letters, Elsevier, Elsevier, vol. 76(3), pages 411-417, August.
  26. Rudd, Jeremy & Whelan, Karl, 2005. "Does Labor's Share Drive Inflation?," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 37(2), pages 297-312, April.
  27. Peter N. Ireland, 2006. "Changes in the Federal Reserve's Inflation Target: Causes and Consequences," NBER Working Papers 12492, National Bureau of Economic Research, Inc.
  28. Matheron, Julien & Maury, Tristan-Pierre, 2004. "Supply-side refinements and the New Keynesian Phillips Curve," Economics Letters, Elsevier, Elsevier, vol. 82(3), pages 391-396, March.
  29. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, Elsevier, vol. 44(2), pages 195-222, October.
  30. Amit Kara & Edward Nelson, 2004. "International evidence on the stability of the optimizing IS equation," Working Papers, Federal Reserve Bank of St. Louis 2003-020, Federal Reserve Bank of St. Louis.
  31. Lars Peter Hansen & Thomas J. Sargent, 1979. "Formulating and estimating dynamic linear rational expectations models," Working Papers, Federal Reserve Bank of Minneapolis 127, Federal Reserve Bank of Minneapolis.
  32. S. G. B Henry & A. R. Pagan, 2004. "The Econometrics of the New Keynesian Policy Model: Introduction," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(s1), pages 581-607, 09.
  33. Jeremy Rudd & Karl Whelan, 2001. "New tests of the New-Keynesian Phillips curve," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2001-30, Board of Governors of the Federal Reserve System (U.S.).
  34. Møller, Niels Framroze, 2008. "Bridging Economic Theory Models and the Cointegrated Vector Autoregressive Model," Economics Discussion Papers 2008-21, Kiel Institute for the World Economy.
  35. Razin, Assaf, 2005. "Aggregate Supply, Investment in Capacity, and Potential Output," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 37(1), pages 179-90, February.
  36. Peter McAdam & Alpo Willman, 2004. "Supply, Factor Shares and Inflation Persistence: Re-examining Euro-area New-Keynesian Phillips Curves," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(s1), pages 637-670, 09.
  37. Søren Johansen & Anders Rygh Swensen, 2004. "More on testing exact rational expectations in cointegrated vector autoregressive models: Restricted constant and linear term," Econometrics Journal, Royal Economic Society, Royal Economic Society, vol. 7(2), pages 389-397, December.
  38. Sbordone, Argia M., 2007. "Inflation persistence: Alternative interpretations and policy implications," Journal of Monetary Economics, Elsevier, Elsevier, vol. 54(5), pages 1311-1339, July.
  39. Fanelli, Luca, 2002. "A new approach for estimating and testing the linear quadratic adjustment cost model under rational expectations and I(1) variables," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 26(1), pages 117-139, January.
  40. Fagan, Gabriel & Henry, Jérôme & Mestre, Ricardo, 2001. "An area-wide model (AWM) for the euro area," Working Paper Series, European Central Bank 0042, European Central Bank.
  41. Claude Giorno & Pete Richardson & Deborah Roseveare & Paul van den Noord, 1995. "Estimating Potential Output, Output Gaps and Structural Budget Balances," OECD Economics Department Working Papers 152, OECD Publishing.
  42. Richard Clarida & Jordi Gali & Mark Gertler, 2002. "A Simple Framework for International Monetary Policy Analysis," NBER Working Papers 8870, National Bureau of Economic Research, Inc.
  43. Gunnar Bardsen & Eilev S. Jansen & Ragnar Nymoen, 2004. "Econometric Evaluation of the New Keynesian Phillips Curve," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(s1), pages 671-686, 09.
  44. Charles R. Nelson & Jaejoon Lee, 2007. "Expectation horizon and the Phillips Curve: the solution to an empirical puzzle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 22(1), pages 161-178.
  45. Sophocles Mavroeidis, 2004. "Weak Identification of Forward-looking Models in Monetary Economics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(s1), pages 609-635, 09.
  46. Juselius, Mikael, 2008. "Cointegration implications of linear rational expectation models," Research Discussion Papers, Bank of Finland 6/2008, Bank of Finland.
  47. Paolo Giordani, 2004. "Evaluating New-Keynesian Models of a Small Open Economy," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(s1), pages 713-733, 09.
  48. Henrik Hansen & Søren Johansen, 1999. "Some tests for parameter constancy in cointegrated VAR-models," Econometrics Journal, Royal Economic Society, Royal Economic Society, vol. 2(2), pages 306-333.
  49. Roberts, John M, 1995. "New Keynesian Economics and the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 27(4), pages 975-84, November.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. 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.
  2. Philip Arestis, 2013. "Inflation Targeting: A Critical Approach," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, Central Bank of Argentina, Economic Research Department, vol. 1(68), pages 7-21, June.
  3. Boug, PÃ¥l & 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.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:zbw:ifwedp:7285. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.