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Regime Shifts and the Stability of Backward Looking Phillips Curves in Open Economies

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  • Efrem Castelnuovo

    (University of Padua)

Abstract

In this paper we assess the stability of open economy backward-looking Phillips curves estimated over two different exchange rate regimes. The pseudo-data employed in our econometric exercise come from the simulation of a New-Keynesian hybrid model suited for performing monetary policy analysis. Two main results arise: i) in most of the simulated scenarios the estimated reduced-form Phillips curves turn out to be unstable. However, if the structural new-keynesian model is predominantly - even if not fully - backward-looking, the estimated reduced-form parameters are stable; ii) the Chow-breakpoint test tends to underestimate the importance of regime-shifts in small samples.

Suggested Citation

  • Efrem Castelnuovo, 2005. "Regime Shifts and the Stability of Backward Looking Phillips Curves in Open Economies," Macroeconomics 0506017, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpma:0506017
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    More about this item

    Keywords

    Lucas Critique; forwardness; backward looking Phillips curves; exchange rates; Chow test.;
    All these keywords.

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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