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Observed Inflation Forecasts and the New Keynesian Phillips Curve

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  • Chengsi Zhang
  • Denise R. Osborn
  • Dong Heon Kim

Abstract

This paper investigates the empirical success of the New Keynesian Phillips Curve (NKPC) in explaining US inflation when observed measures of inflation expectations are used in conjunction with the output gap. The paper contributes to the literature by addressing the important problem of serial correlation in the stylized NKPC and developing an extended model to account for this serial correlation. Contrary to recent results indicating no role for the output gap, we find it to be a statistically significant driving variable for inflation, with this finding robust to whether the inflation expectations series used relates to individual consumers, professional forecasters or the US Fed.

Suggested Citation

  • Chengsi Zhang & Denise R. Osborn & Dong Heon Kim, 2009. "Observed Inflation Forecasts and the New Keynesian Phillips Curve," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(3), pages 375-398, June.
  • Handle: RePEc:bla:obuest:v:71:y:2009:i:3:p:375-398
    DOI: 10.1111/j.1468-0084.2009.00544.x
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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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