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Estimates of the US Phillips curve with the general to specific method

  • Rao, B. Bhaskara
  • Paradiso, Antonio

This paper distinguishes between the long run and short run Phillips curve (PC) and uses the micro theory based specification, with forward looking expectations, for the long run PC. The long run and the implied short run dynamic equations are estimated in one step with the general to specific method (GETS). Our approach has two distinct advantages. Firstly, classical estimation methods can be used, irrespective of the stationarity properties of the variables. Secondly, instead of arbitrarily adding the lagged inflation rate to the theory based long run PC to capture persistence in inflation, our approach shows that persistence effects can also be captured through the dynamic adjustment equations. This has an added advantage because it offers a more flexible lag structure to estimate dynamic adjustments compared to the partial adjustment process in the hybrid NKPC.

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File URL: http://mpra.ub.uni-muenchen.de/28411/3/MPRA_paper_28411.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 28411.

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Date of creation: 16 Jan 2011
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Handle: RePEc:pra:mprapa:28411
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  1. Rao, B. Bhaskara & Singh, Rup & Kumar, Saten, 2008. "Do we need time series econometrics," MPRA Paper 10530, University Library of Munich, Germany, revised 14 Sep 2008.
  2. Baghestani, Hamid & Noori, Esmail, 1988. "On the rationality of the Michigan monthly survey of inflationary expectations," Economics Letters, Elsevier, vol. 27(4), pages 333-335.
  3. Jeremy Rudd & Karl Whelan, 2003. "Can rational expectations sticky-price models explain inflation dynamics?," Finance and Economics Discussion Series 2003-46, Board of Governors of the Federal Reserve System (U.S.).
  4. Pablo A. Guerron-Quintana, 2010. "The implications of inflation in an estimated New-Keynesian model," Working Papers 10-2, Federal Reserve Bank of Philadelphia.
  5. Robert Shimer, 2007. "Reassessing the Ins and Outs of Unemployment," NBER Working Papers 13421, National Bureau of Economic Research, Inc.
  6. Rudd, Jeremy & Whelan, Karl, 2005. "Modelling Inflation Dynamics: A Critical Review of Recent Research," Research Technical Papers 7/RT/05, Central Bank of Ireland.
  7. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October.
  8. Boug, Pål & Cappelen, Adne & Swensen, Anders Rygh, 2010. "The new Keynesian Phillips curve revisited," Journal of Economic Dynamics and Control, Elsevier, vol. 34(5), pages 858-874, May.
  9. Bhaskara Rao, 2005. "Estimating Short and Long Run Relationships: A Guide to the Applied Economist," Econometrics 0508013, EconWPA.
  10. Pearce, Douglas K, 1979. "Comparing Survey and Rational Measures of Expected Inflation: Forecast Performance and Interest Rate Effects," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(4), pages 447-56, November.
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