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The New Keynesian Phillips curve tested on OECD panel data

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  • Bjørnstad, Roger
  • Nymoen, Ragnar

Abstract

In their work, Galí, Gertler and Lopez-Salido, GGL, assert that the hybrid New Keynesian Phillips curve (NPC) with dominance of forward-looking behavior and real marginal costs is robust to choices of estimation procedure, details of variables definitions and choice of data samples. In an estimation on panel data from OECD countries we replicate the typical empirical NPC from country studies. However, we also test an alternative economic interpretation of the empirical correlations. Specifically we find that the expected rate of future inflation and real marginal costs serve as replacements for equilibrium correction terms that are implied by the general imperfect competition model of wage and price setting. As a explanatory model of OECD inflation, the NPC is encompassed by an existing theory.

Suggested Citation

  • Bjørnstad, Roger & Nymoen, Ragnar, 2008. "The New Keynesian Phillips curve tested on OECD panel data," Economics Discussion Papers 2008-4, Kiel Institute for the World Economy (IfW).
  • Handle: RePEc:zbw:ifwedp:6988
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    References listed on IDEAS

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    Cited by:

    1. Jennifer L. Castle & Jurgen A. Doornik & David F. Hendry & Ragnar Nymoen, 2014. "Misspecification Testing: Non-Invariance of Expectations Models of Inflation," Econometric Reviews, Taylor & Francis Journals, vol. 33(5-6), pages 553-574, August.
    2. Filiz Yesilyurt & J. Elhorst, 2014. "A regional analysis of inflation dynamics in Turkey," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 52(1), pages 1-17, January.
    3. Christopher Tsoukis & George Kapetanios & Joseph Pearlman, 2011. "Elusive Persistence: Wage And Price Rigidities, The New Keynesian Phillips Curve And Inflation Dynamics," Journal of Economic Surveys, Wiley Blackwell, vol. 25(4), pages 737-768, September.
    4. Nymoen, Ragnar & Swensen, Anders Rygh & Tveter, Eivind, 2012. "Interpreting the evidence for New Keynesian models of inflation dynamics," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 253-263.
    5. Ordóñez, Javier & Jusélius, Katarina, 2009. "Balassa-Samuelson and Wage, Price and Unemployment Dynamics in the Spanish Transition to EMU Membership," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 3, pages 1-30.
    6. Gomes, Orlando, 2012. "Thought experimentation and the Phillips curve," Research in Economics, Elsevier, vol. 66(1), pages 45-64.
    7. 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.
    8. Lena Vogel, 2008. "The Relationship between the Hybrid New Keynesian Phillips Curve and the NAIRU over Time," Macroeconomics and Finance Series 200803, Hamburg University, Department Wirtschaft und Politik.
    9. Pål Boug & Ådne Cappelen & Torbjørn Eika, 2013. "The importance of the distribution sector for exchange rate pass-through in a small open economy. A large scale macroeconometric modelling approach," Discussion Papers 731, Statistics Norway, Research Department.

    More about this item

    Keywords

    New Keynesian Phillips Curve; forward-looking price setting; panel data model; encompassing;

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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