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The New Keynesian Phillips Curve and the Role of Expectations: Evidence from the Ifo World Economic Survey

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  • Steffen Henzel
  • Timo Wollmershäuser

Abstract

We provide evidence on the fit of the hybrid New Keynesian Phillips curve for selected euro zone countries, the US and the UK. Instead of imposing rational expectations and estimating the Phillips curve by the Generalized Method of Moments, we follow Roberts (1997) and Adam and Padula (2003) and use direct measures of inflation expectations. The data source is the Ifo World Economic Survey, which quarterly polls economic experts about their expected future development of inflation. Our main findings are as follows: (i) In comparison with the rational expectations approach, backward-looking behaviour turns out to more relevant for most countries in our sample. (ii) The use of survey data for inflation expectations yields a positive slope of the Phillips curve when the output gap is used as a measure for marginal cost.

Suggested Citation

  • Steffen Henzel & Timo Wollmershäuser, 2006. "The New Keynesian Phillips Curve and the Role of Expectations: Evidence from the Ifo World Economic Survey," CESifo Working Paper Series 1694, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_1694
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    References listed on IDEAS

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    Cited by:

    1. Evgenia Kudymowa & Johanna Garnitz & Klaus Wohlrabe, 2013. "Ifo World Economic Survey und die realwirtschaftliche Entwicklung in ausgewählten Ländern," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 66(19), pages 23-30, October.
    2. Katarína Danišková & Jarko Fidrmuc, 2011. "Inflation Convergence and the New Keynesian Phillips Curve in the Czech Republic," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 5(2), pages 099-115, August.
    3. Katarína Danišková & Jarko Fidrmuc, 2012. "Meta-Analysis of the New Keynesian Phillips Curve," Working Papers 314, Leibniz Institut für Ost- und Südosteuropaforschung (Institute for East and Southeast European Studies).
    4. Adolfo Sachsida & Marcio Ribeiro & Claudio Hamilton dos Santos, 2009. "A Curva de Phillips e a Experiência Brasileira," Discussion Papers 1429, Instituto de Pesquisa Econômica Aplicada - IPEA.
    5. Kim Chang-Jin & Kim Yunmi, 2008. "Is the Backward-Looking Component Important in a New Keynesian Phillips Curve?," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 12(3), pages 1-20, September.
    6. Halina Kowalczyk & Tomasz Lyziak & Ewa Stanisławska, 2013. "A new approach to probabilistic surveys of professional forecasters and its application in the monetary policy context," NBP Working Papers 142, Narodowy Bank Polski, Economic Research Department.
    7. Tomasz Lyziak, 2014. "Inflation expectations in Poland, 2001–2013. Measurement and macroeconomic testing," NBP Working Papers 178, Narodowy Bank Polski, Economic Research Department.
    8. Evgenia Kudymowa & Johanna Garnitz & Klaus Wohlrabe, 2014. "Ifo World Economic Survey and the Business Cycle in Selected Countries," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 14(4), pages 51-57, January.

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    Keywords

    inflation expectations; survey data; euro zone; Phillips curve;

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