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The Small Open Economy New-Keynesian Phillips Curve: Specification, Structural Breaks and Robustness

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  • Aquino, Juan

    (Banco Central de Reserva del Perú)

Abstract

This paper empirically assesses the concern on whether the slope of the Phillips curve with respect to the output gap has decreased (i.e. the Phillips curve has “flattened”). We derive a generalized lag-augmented version of the New-Keynesian Phillips Curve for a small open economy (Galí and Monacelli, 2005) in order to specify a semi-structural estimation equation. For the Peruvian economy, such equation is estimated via the Generalized Method of Moments for the Inflation-Targeting regime (January 2002 - March 2019) and the post-crisis (January 2008 - March 2019) periods. We found that the slope parameter has remained stable for both estimation periods. Moreover, the expectation channel has gained more relevance for the post-crisis period, a result that is consistent with a lower persistence of inflation dynamics. Our results are also consistent with the presence of long run nominal homogeneity across estimation samples.

Suggested Citation

  • Aquino, Juan, 2019. "The Small Open Economy New-Keynesian Phillips Curve: Specification, Structural Breaks and Robustness," Working Papers 2019-019, Banco Central de Reserva del Perú.
    • Handle: RePEc:rbp:wpaper:2019-019
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    References listed on IDEAS

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    More about this item

    Keywords

    New-Keynesian Phillips curve; small open economy; Generalized Method of Moments.;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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