IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper

International Evidence on the Efficacy of new-Keynesian Models of Inflation Persistence

  • Norman R. Swanson

    ()

    (Rutgers University)

  • Oleg Korenok

    ()

    (VCU)

  • Stanislav Radchenko

    ()

    (Goldman Sachs)

We take an agnostic view of the Phillips curve debate, and carry out an empirical investigation of the relative and absolute efficacy of Calvo sticky price (SP), sticky information (SI), and sticky price with indexation models (SPI), with emphasis on their ability to mimic inflationary dynamics. We look at evidence for a group of 13 OECD countries, and consider three alternative measures of inflationary pressure, including the output gap, labor share, and unemployment. We find that the SPI model is preferable to the Calvo SP and the SI models because it captures the type of strong inflationary persistence that has in the past characterized the economies in our sample. However, two caveats to this conclusion are that improvement in performance is driven mostly by lagged inflation and that the SPI model overemphasizes inflationary persistence. There appears to be room for improvement in all models in order to induce them to better “track” inflation persistence.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sas.rutgers.edu/virtual/snde/wp/2011-04.pdf
Download Restriction: no

Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 201104.

as
in new window

Length: 20 pages
Date of creation: 14 May 2011
Date of revision:
Publication status: Published in Journal of Applied Econometrics 25, 31-54
Handle: RePEc:rut:rutres:201104
Contact details of provider: Postal:
New Jersey Hall - 75 Hamilton Street, New Brunswick, NJ 08901-1248

Phone: (732) 932-7363
Fax: (732) 932-7416
Web page: http://economics.rutgers.edu/

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Lindé, Jesper, 2001. "Estimating New-Keynesian Phillips Curves: A Full Information Maximum Likelihood Approach," Working Paper Series 129, Sveriges Riksbank (Central Bank of Sweden), revised 30 Apr 2001.
  2. Mankiw, N. Gregory & Reis, Ricardo, 2002. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," Scholarly Articles 3415324, Harvard University Department of Economics.
  3. FAME,Eric Jondeau, University of Lausanne-HEC & Jean Imbs & Eric Jondeau & Florian Pelgrin, 2006. "Aggregating Phillips Curves," Computing in Economics and Finance 2006 314, Society for Computational Economics.
  4. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper 0107, Federal Reserve Bank of Cleveland.
  5. Athanasios Orphanides & John C. Williams, 2002. "Imperfect knowledge, inflation expectations, and monetary policy," Finance and Economics Discussion Series 2002-27, Board of Governors of the Federal Reserve System (U.S.).
  6. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers 2139, C.E.P.R. Discussion Papers.
  7. Valentina Corradi & Norman R. Swanson, 2003. "Evaluation of Dynamic Stochastic General Equilibrium Models Based on Distributional Comparison of Simulated and Historical Data," Departmental Working Papers 200320, Rutgers University, Department of Economics.
  8. Darrell Duffie & Kenneth J. Singleton, 1990. "Simulated Moments Estimation of Markov Models of Asset Prices," NBER Technical Working Papers 0087, National Bureau of Economic Research, Inc.
  9. Kurmann, Andre, 2007. "VAR-based estimation of Euler equations with an application to New Keynesian pricing," Journal of Economic Dynamics and Control, Elsevier, vol. 31(3), pages 767-796, March.
  10. Trabandt, Mathias, 2007. "Sticky Information vs. Sticky Prices: A Horse Race in a DSGE Framework," Kiel Working Papers 1369, Kiel Institute for the World Economy (IfW).
  11. Marvin Goodfriend & Robert G. King, 1998. "The new neoclassical synthesis and the role of monetary policy," Working Paper 98-05, Federal Reserve Bank of Richmond.
  12. Timothy Cogley & Argia M. Sbordone, 2005. "A search for a structural Phillips curve," Staff Reports 203, Federal Reserve Bank of New York.
  13. Argia M. Sbordone, 2005. "Do expected future marginal costs drive inflation dynamics?," Staff Reports 204, Federal Reserve Bank of New York.
  14. Fuhrer, Jeffrey C, 1997. "The (Un)Importance of Forward-Looking Behavior in Price Specifications," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 338-50, August.
  15. Oleg Korenok & Stanislav Radchenko & Norman R. Swanson, 2006. "International Evidence on the Efficacy of new-Keynesian Models of Inflation Persistence," Working Papers 0602, VCU School of Business, Department of Economics.
  16. Anthony Garratt & Gary Koop & Emi Mise & Shaun Vahey, 2008. "Real-time Prediction with UK Monetary Aggregates in the Presence of Model Uncertainty," Reserve Bank of New Zealand Discussion Paper Series DP2008/13, Reserve Bank of New Zealand.
  17. Danielsson, J & Richard, J-F, 1993. "Accelerated Gaussian Importance Sampler with Application to Dynamic Latent Variable Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages S153-73, Suppl. De.
  18. Martin Fukac & Adrian Pagan, 2008. "Limited Information Estimation and Evaluation of DSGE Models," Reserve Bank of New Zealand Discussion Paper Series DP2008/11, Reserve Bank of New Zealand.
  19. Norman Swanson & Valentina Corradi, 2006. "Nonparametric Bootstrap Procedures for Predictive Inference Based on Recursive Estimation Schemes," Departmental Working Papers 200618, Rutgers University, Department of Economics.
  20. Oleg Korenok & Norman R. Swanson, 2007. "How Sticky Is Sticky Enough? A Distributional and Impulse Response Analysis of New Keynesian DSGE Models," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(6), pages 1481-1508, 09.
  21. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1998. "Monetary Policy Shocks: What Have We Learned and to What End?," NBER Working Papers 6400, National Bureau of Economic Research, Inc.
  22. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
  23. Corradi, Valentina & Swanson, Norman R., 2006. "Predictive density and conditional confidence interval accuracy tests," Journal of Econometrics, Elsevier, vol. 135(1-2), pages 187-228.
  24. Marco Del Negro & Frank Schorfheide, 2005. "Monetary policy analysis with potentially misspecified models," Working Papers 06-4, Federal Reserve Bank of Philadelphia.
  25. Lawrence J. Christiano & Martin Eichenbaum, 1990. "Current real business cycle theories and aggregate labor market fluctuations," Working Paper Series, Macroeconomic Issues 90, Federal Reserve Bank of Chicago.
  26. Laurence Ball, 1990. "Credible Disinflation with Staggered Price Setting," NBER Working Papers 3555, National Bureau of Economic Research, Inc.
  27. Bernanke, Ben & Gertler, Mark, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Working Papers 95-15, C.V. Starr Center for Applied Economics, New York University.
  28. Oleg Korenok, 2005. "Empirical Comparison of Sticky Price and Sticky Information Models," Macroeconomics 0510004, EconWPA.
  29. Jeffrey C. Fuhrer, 2006. "Intrinsic and Inherited Inflation Persistence," International Journal of Central Banking, International Journal of Central Banking, vol. 2(3), September.
  30. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc.
  31. Argia M. Sbordone, 2001. "Prices and Unit Labor Costs: A New Test of Price Stickiness," Departmental Working Papers 200112, Rutgers University, Department of Economics.
  32. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  33. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, 09.
  34. Jeff Fuhrer & George Moore, 1995. "Inflation Persistence," The Quarterly Journal of Economics, Oxford University Press, vol. 110(1), pages 127-159.
  35. Oleg Korenok & Norman R. Swanson, 2005. "The Incremental Predictive Information Associated with Using Theoretical New Keynesian DSGE Models vs. Simple Linear Econometric Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(s1), pages 905-930, December.
  36. Michael T. Kiley, 2006. "A quantitative comparison of sticky-price and sticky-information models of price setting," Finance and Economics Discussion Series 2006-45, Board of Governors of the Federal Reserve System (U.S.).
  37. Valentina Corradi & Norman Swanson, 2004. "Predictive Density Evaluation," Departmental Working Papers 200419, Rutgers University, Department of Economics.
  38. Bierens, Herman J., 2007. "Econometric analysis of linearized singular dynamic stochastic general equilibrium models," Journal of Econometrics, Elsevier, vol. 136(2), pages 595-627, February.
  39. Jordi Galí & Mark Gertler, 1998. "Inflation dynamics: A structural econometric analysis," Economics Working Papers 341, Department of Economics and Business, Universitat Pompeu Fabra.
  40. Corradi, Valentina & Swanson, Norman R., 2005. "A Test For Comparing Multiple Misspecified Conditional Interval Models," Econometric Theory, Cambridge University Press, vol. 21(05), pages 991-1016, October.
  41. Elliott, Graham & Timmermann, Allan G, 2007. "Economic Forecasting," CEPR Discussion Papers 6158, C.E.P.R. Discussion Papers.
  42. Jean-Philippe Laforte, 2007. "Pricing Models: A Bayesian DSGE Approach for the U.S. Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(s1), pages 127-154, 02.
  43. Trabandt, Mathias, 2003. "Sticky Information vs. Sticky Prices : A Horse Race in a DSGE Framework," SFB 373 Discussion Papers 2003,41, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  44. Alexander L. Wolman, 1999. "Sticky prices, marginal cost, and the behavior of inflation," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 29-48.
  45. Valentina Corradi & Norman R. Swanson, 2003. "A Test for Comparing Multiple Misspecified Conditional Distributions," Departmental Working Papers 200314, Rutgers University, Department of Economics.
  46. Stock, James H. & Watson, Mark W., 1999. "Forecasting inflation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 293-335, October.
  47. Timothy Cogley & Argia M. Sbordone, 2008. "Trend Inflation, Indexation, and Inflation Persistence in the New Keynesian Phillips Curve," American Economic Review, American Economic Association, vol. 98(5), pages 2101-26, December.
  48. Khan, Hashmat & Zhu, Zhenhua, 2006. "Estimates of the Sticky-Information Phillips Curve for the United States," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(1), pages 195-207, February.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:rut:rutres:201104. 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: ()

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.