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Subjective Expectations and New Keynesian Phillips Curves in Europe

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  • Janko Gorter

Abstract

This paper assesses the empirical performance of the forward-looking new Keynesian Phillips curve (NKPC) in France, Germany and Italy for the period 1991.3-2004.4. Instead of imposing rational expectations, I use direct measures of inflation expectations constructed from Consensus Economics survey data. Dependent on the real marginal costs measure, I obtain significant and plausible estimates for the quarterly discount factor and the price rigidity parameter. When analyzing the role of lagged inflation, I find that only in France lagged inflation does not have explanatory power beyond predicting expected inflation. This suggests that only in France the standard forward-looking NKPC effectively captures quarterly inflation dynamics.

Suggested Citation

  • Janko Gorter, 2005. "Subjective Expectations and New Keynesian Phillips Curves in Europe," DNB Working Papers 049, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:049
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    2. Büyükkarabacak, Berrak & Mykhaylova, Olena, 2010. "Housing market dynamics and welfare," MPRA Paper 23322, University Library of Munich, Germany.

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    More about this item

    Keywords

    Inflation; Phillips Curve; Subjective Expectations;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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