IDEAS home Printed from https://ideas.repec.org/p/nst/samfok/2102.html
   My bibliography  Save this paper

The Empirical (ir)Relevance of the New Keynesian Phillips Curve

Author

Listed:
  • Gunnar Bårdsen

    () (Department of Economics, Norwegian University of Science and Technology)

  • Eilev S. Jansen

    () (Norges Bank and Department of Economics, Norwegian University of Science and Technology)

  • Ragnar Nymoen

    () (Department of Economics, University of Oslo)

Abstract

We give an appraisal of the New Keynesian Phillips curve (NPC) as an empirical model of European inflation. We show that existing evidence reported in favour of the NPC on Euro-area and country data is due to a corroborative research strategy. In particular, goodness-of-fit is a weak criterion, since the NPC-fit is well approximated by a random walk. Instead we report the outcome of more critical tests, and the importance of modelling a system that includes the forcing variables as well as the rate of inflation is emphasized.Finally, encompassing tests are applied to open economy versions of the NPC for UK and Norway.

Suggested Citation

  • Gunnar Bårdsen & Eilev S. Jansen & Ragnar Nymoen, 2002. "The Empirical (ir)Relevance of the New Keynesian Phillips Curve," Working Paper Series 2102, Department of Economics, Norwegian University of Science and Technology.
  • Handle: RePEc:nst:samfok:2102
    as

    Download full text from publisher

    File URL: http://www.svt.ntnu.no/iso/WP/2002/21testnkp.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Uribe, Martin, 2003. "Real exchange rate targeting and macroeconomic instability," Journal of International Economics, Elsevier, vol. 59(1), pages 137-159, January.
    2. Engle, Robert F. & Hendry, David F., 1993. "Testing superexogeneity and invariance in regression models," Journal of Econometrics, Elsevier, pages 119-139.
    3. Taylor, John B, 1979. "Staggered Wage Setting in a Macro Model," American Economic Review, American Economic Association, pages 108-113.
    4. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, pages 195-222.
    5. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
    6. Hendry, David F & Mizon, Grayham E, 1978. "Serial Correlation as a Convenient Simplification, not a Nuisance: A Comment on a Study of the Demand for Money by the Bank of England," Economic Journal, Royal Economic Society, vol. 88(351), pages 549-563, September.
    7. Cuthbertson, Keith, 1988. "The Demand for M1: A Forward Looking Buffer Stock Model," Oxford Economic Papers, Oxford University Press, vol. 40(1), pages 110-131, March.
    8. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
    9. Gourieroux,Christian & Monfort,Alain, 1997. "Time Series and Dynamic Models," Cambridge Books, Cambridge University Press, number 9780521423083, November.
    10. Rudd, Jeremy & Whelan, Karl, 2005. "New tests of the new-Keynesian Phillips curve," Journal of Monetary Economics, Elsevier, pages 1167-1181.
    11. Gunnar Bårdsen & Eilev S. Jansen & Ragnar Nymoen, 2000. "Model Specification and Inflation Forecast Uncertainty," Working Paper Series 1302, Department of Economics, Norwegian University of Science and Technology, revised 29 Jan 2002.
    12. Gali, Jordi & Gertler, Mark & Lopez-Salido, J. David, 2001. "European inflation dynamics," European Economic Review, Elsevier, vol. 45(7), pages 1237-1270.
    13. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, pages 1661-1707.
    14. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    15. Hendry, David F, 1988. "The Encompassing Implications of Feedback versus Feedforward Mechanisms in Econometrics," Oxford Economic Papers, Oxford University Press, vol. 40(1), pages 132-149, March.
    16. Neil R. Ericsson & David F. Hendry, 1989. "Encompassing and rational expectations: how sequential corroboration can imply refutation," International Finance Discussion Papers 354, Board of Governors of the Federal Reserve System (U.S.).
    17. Nymoen, Ragnar, 1989. "Modelling Wages in the Small Open Economy: An Error-Correction Model of Norwegian Manufacturing Wages," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 51(3), pages 239-258, August.
    18. Bankim Chadha & Paul R. Masson & Guy Meredith, 1992. "Models of Inflation and the Costs of Disinflation," IMF Staff Papers, Palgrave Macmillan, vol. 39(2), pages 395-431, June.
    19. Bardsen, G. & Fisher, P.G. & Nymoen, R., 1994. "Business Cycles: Real Facts or Fallacies?," Papers 20-94, Norwegian School of Economics and Business Administration-.
    20. Edmund Phelps, 1978. "Disinflation without recession: Adaptive guideposts and monetary policy," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), pages 783-809.
    21. Nicoletta Batini & Brian Jackson & Stephen Nickell, 2000. "Inflation Dynamics and the Labour Share in the UK," Discussion Papers 02, Monetary Policy Committee Unit, Bank of England.
    22. Sbordone, Argia M., 2002. "Prices and unit labor costs: a new test of price stickiness," Journal of Monetary Economics, Elsevier, pages 265-292.
    23. Engle, Robert F. & Hendry, David F., 1993. "Testing superexogeneity and invariance in regression models," Journal of Econometrics, Elsevier, pages 119-139.
    24. Roberts, John M, 1995. "New Keynesian Economics and the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 975-984, November.
    25. David F. Hendry & Neil R. Ericsson, 1999. "Encompassing and rational expectations: How sequential corroboration can imply refutation," Empirical Economics, Springer, pages 1-21.
    26. Lawrence F. Katz & Olivier Blanchard, 1999. "Wage Dynamics: Reconciling Theory and Evidence," American Economic Review, American Economic Association, pages 69-74.
    27. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, pages 155-183.
    28. David Blake, 1991. "The Estimation of Rational Expectations Models: A Survey," Journal of Economic Studies, Emerald Group Publishing, vol. 18(3), pages 31-70, September.
    29. Engle, R. & Hendry, D., 1990. "Testing Super Exogeneity And Invariance In Regression Models," Economics Series Working Papers 99100, University of Oxford, Department of Economics.
    30. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, pages 155-183.
    31. Sbordone, Argia M., 2002. "Prices and unit labor costs: a new test of price stickiness," Journal of Monetary Economics, Elsevier, pages 265-292.
    32. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
    33. Paul G. Fisher & Gunnar BÅrdsen, 1999. "Economic theory and econometric dynamics in modelling wages and prices in the United Kingdom," Empirical Economics, Springer, pages 483-507.
    34. Lawrence F. Katz & Olivier Blanchard, 1999. "Wage Dynamics: Reconciling Theory and Evidence," American Economic Review, American Economic Association, pages 69-74.
    35. Gunnar Bardsen & Eilev S. Jansen & Ragnar Nymoen, 2003. "Econometric inflation targeting," Econometrics Journal, Royal Economic Society, vol. 6(2), pages 430-461, December.
    36. Bårdsen, Gunnar & Jansen, Eilev S. & Nymoen, Ragnar, 2003. "Testing the New Keynesian Phillips curve," Memorandum 18/2002, Oslo University, Department of Economics.
    37. Gunnar Bardsen & Eilev Jansen & Ragnar Nymoen, 2002. "Model Specification and Inflation Forecast Uncertainty," Annals of Economics and Statistics, GENES, pages 495-517.
    38. Spanos,Aris, 1986. "Statistical Foundations of Econometric Modelling," Cambridge Books, Cambridge University Press, number 9780521269124, December.
    39. Fagan, Gabriel & Henry, Jérôme & Mestre, Ricardo, 2001. "An area-wide model (AWM) for the euro area," Working Paper Series 0042, European Central Bank.
    40. Hoel, Michael & Nymoen, Ragnar, 1988. "Wage formation in norwegian manufacturing: An empirical application of a theoretical bargaining model," European Economic Review, Elsevier, vol. 32(4), pages 977-997, April.
    41. Jeff Fuhrer & George Moore, 1995. "Inflation Persistence," The Quarterly Journal of Economics, Oxford University Press, vol. 110(1), pages 127-159.
    42. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, pages 383-398.
    43. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. James M. Nason & Gregor W. Smith, 2008. "Identifying the new Keynesian Phillips curve," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(5), pages 525-551.
    2. Marika Karanassou & Hector Sala & Dennis J. Snower, 2010. "Phillips Curves And Unemployment Dynamics: A Critique And A Holistic Perspective," Journal of Economic Surveys, Wiley Blackwell, pages 1-51.
    3. Karanassou, Marika & Sala, Hector & Snower, Dennis J., 2005. "A reappraisal of the inflation-unemployment tradeoff," European Journal of Political Economy, Elsevier, pages 1-32.
    4. Marika Karanassou & Dennis J. Snower, 2007. "Inflation Persistence and the Phillips Curve Revisited," Working Papers 586, Queen Mary University of London, School of Economics and Finance.
    5. Karanassou, Marika & Snower, Dennis J., 2007. "Inflation persistence and the Philips curve revisited," Kiel Working Papers 1349, Kiel Institute for the World Economy (IfW).
    6. Karanassou, Marika & Sala, Hector & Snower, Dennis J., 2003. "The European Phillips Curve: Does the NAIRU Exist?," IZA Discussion Papers 876, Institute for the Study of Labor (IZA).
    7. Janine Aron & John Muellbauer & B. Smit, 2004. "A Structural Model of the Inflation Process in South Africa," CSAE Working Paper Series 2004-08, Centre for the Study of African Economies, University of Oxford.
    8. Jin, Xisong & Nadal De Simone, Francisco de A., 2014. "Banking systemic vulnerabilities: A tail-risk dynamic CIMDO approach," Journal of Financial Stability, Elsevier, vol. 14(C), pages 81-101.

    More about this item

    Keywords

    New Keynesian Phillips curves; Euro inflation; UK inflation; Norwegian inflation; Monetary policy; Dynamic stability conditions; Evaluation; Encompassing tests;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nst:samfok:2102. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Hilde Saxi Gildberg). General contact details of provider: http://edirc.repec.org/data/isontno.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.