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Estimates of the Open Economy New Keynesian Phillips Curve for Euro Area Countries

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  • Fabio Rumler

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Abstract

This paper extends the existing literature on the open economy New Keynesian Phillips Curve by incorporating three different factors of production, domestic labor and imported as well as domestically produced intermediate goods, into a general model which nests existing closed economy and open economy models. The model is estimated for nine euro area countries and the euro area aggregate. We find that the general specification of our model improves the fit of the New Keynesian Phillips Curve considerably compared to the closed economy specification. The estimates of the structural parameters of the model suggest strong heterogeneity in the degree of price rigidity across euro area counties. Furthermore, we find the degree of price rigidity to be systematically lower in the open economy specification than in the closed economy specification and also lower than in the general specification of our model. Copyright Springer Science+Business Media, LLC 2007

Suggested Citation

  • Fabio Rumler, 2007. "Estimates of the Open Economy New Keynesian Phillips Curve for Euro Area Countries," Open Economies Review, Springer, vol. 18(4), pages 427-451, September.
  • Handle: RePEc:kap:openec:v:18:y:2007:i:4:p:427-451
    DOI: 10.1007/s11079-007-9028-6
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    Keywords

    New Keynesian Phillips Curve; open economy; GMM; E31; C22; E12;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian

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