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The New Keynesian Phillips Curve revisited

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    Recently, several authors have questioned the evidence claimed by Galí and Gertler (1999) and Galí, Gertler and López-Salido (2001) that a hybrid version of the New Keynesian Phillips Curve approximates European and US inflation dynamics quite well. We re-examine the evidence using likelihood-based methods. Although including lagged inflation enhances the empirical fit, the improvement is not large enough to yield a model that passes a likelihood ratio test. We also show that the likelihood surface is rather flat, especially in the European case, indicating that the model may be weakly identified as criticised by others using alternative methods.

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    Paper provided by Statistics Norway, Research Department in its series Discussion Papers with number 500.

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    Date of creation: Mar 2007
    Date of revision:
    Handle: RePEc:ssb:dispap:500
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