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Observed Inflation Forecasts and the New Keynesian Phillips Curve

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

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. Copyright (c) Blackwell Publishing Ltd and the Department of Economics, University of Oxford, 2009.

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File URL: http://www.socialsciences.manchester.ac.uk/medialibrary/economics/discussionpapers/EDP-0632.pdf
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Paper provided by Economics, The University of Manchester in its series The School of Economics Discussion Paper Series with number 0632.

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Date of creation: 2006
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Handle: RePEc:man:sespap:0632
Contact details of provider: Postal: Manchester M13 9PL
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Web page: http://www.socialsciences.manchester.ac.uk/subjects/economics/

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