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Robustness of the estimates of the hybrid New Keynesian Phillips curve

  • Gali, Jordi
  • Gertler, Mark
  • David Lopez-Salido, J.

Gal and Gertler (1999) developed a hybrid variation of the New Keynesian Phillips curve that relates inflation to real marginal cost, expected future inflation and lagged inflation. GMM estimates of the model suggest that forward looking behavior is highly important; the coefficient on expected future inflation is large and highly significant. Several authors have argued that our results may be the product of either some form of specification bias or poor estimation methods. Here we show that these claims are incorrect. We show that our results are robust to a variety of estimation procedures, including GMM estimation of the closed form, and nonlinear instrumental variables. Hence the conclusions of GG and others regarding the importance of forward looking behavior appear to be robust.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 52 (2005)
Issue (Month): 6 (September)
Pages: 1107-1118

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Handle: RePEc:eee:moneco:v:52:y:2005:i:6:p:1107-1118
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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  1. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper Series WP-01-08, Federal Reserve Bank of Chicago.
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  14. Rudd, Jeremy & Whelan, Karl, 2005. "New tests of the new-Keynesian Phillips curve," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1167-1181, September.
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