Hostname: page-component-78c5997874-m6dg7 Total loading time: 0 Render date: 2024-11-14T07:26:14.727Z Has data issue: false hasContentIssue false
  • English
  • Français

THE NEW KEYNESIAN PHILLIPS CURVE IN A TIME-VARYING COEFFICIENT ENVIRONMENT: SOME EUROPEAN EVIDENCE

Published online by Cambridge University Press:  01 April 2009

George Hondroyiannis ,
P.A.V.B. Swamy  and
George S. Tavlas
George Hondroyiannis
Affiliation:
Bank of Greece and Harokopio University
P.A.V.B. Swamy
Affiliation:
U.S. Bureau of Labor Statistics
George S. Tavlas*
Affiliation:
Bank of Greece
*
Address correspondence to: George Tavlas, Economics Research Department, Bank of Greece, 21, El. Venizelos Ave, 102 50 Athens, Greece; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

We examine whether the importance of lagged inflation in the New Keynesian Phillips Curve (NKPC) may be a result of specification biases. NKPCs are estimated for four countries: France, Germany, Italy, and the United Kingdom. Using time-varying coefficient (TVC) estimation, a procedure that can deal with possible specification biases, we find support for the NKPC model that excludes lagged inflation. Our results indicate a Phillips-curve relationship for the countries considered that does not contain an inertial element.

Keywords

New Keynesian Phillips CurveSpecification BiasesTime-Varying Coefficients
Type
Articles
Information
Macroeconomic Dynamics , Volume 13 , Issue 2 , April 2009 , pp. 149 - 166
Copyright
Copyright © Cambridge University Press 2009

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Altissimo, Fillipo, Ehrmann, Michael, and Smets, Frank (2006) Inflation Persistence and Price-Setting Behavior in the Euro Area: A Summary of the Inflation Persistence Network Evidence. Working paper research, No. 95, Bank of Belgium.CrossRefGoogle Scholar
Ascari, Guido (2004) Staggered prices and trend inflation: Some nuisances. Review of Economic Dynamics 7, 642–667.CrossRefGoogle Scholar
Bakhshi, Hasan, Khan, Hashmat, Burriel-Llombart, Pablo, and Rudolf, Barbara (2007) The New Keynesian Phillips curve under trend inflation and strategic complementarity. Journal of Macroeconomics 29, 37–59.CrossRefGoogle Scholar
Calvo, Guillermo (1983) Staggered prices in a utility-maximizing framework. Journal of Monetary Economics 12, 383–398.CrossRefGoogle Scholar
Chang, I-Lok, Hallahan, Charles, and Swamy, P.A. V.B. (1992) Efficient computation of stochastic coefficient models. In Amman, Hans M., Belsley, David A., and Pau, Louis F. (eds.), Computational Economics and Econometrics, pp. 43–53. London: Kluwer Academic Publishers.CrossRefGoogle Scholar
Christiano, Lawrence, Eichenbaum, Martin, and Evans, Charles (2005) Nominal rigidities and the dynamic effects of a shock to monetary policy. Journal of Political Economy 113, 1–45.CrossRefGoogle Scholar
Cogley, Timothy and Sbordone, Argia M. (2006) Trend Inflation and Inflation Persistence in the New Keynesian Phillips Curve. Federal Reserve Bank of New York Staff Reports, No. 270.CrossRefGoogle Scholar
Fuhrer, Jeff C. (1997) The (un)importance of forward–looking behavior in price setting. Journal of Money, Credit and Banking 29, 338–350.CrossRefGoogle Scholar
Gali, Jordi and Gertler, Mark (1999) Inflation dynamics: A structural econometric approach. Journal of Monetary Economics 44, 195–222.CrossRefGoogle Scholar
Granger, Clive W.J. and Newbold, Paul (1974). Spurious regressions in econometrics. Journal of Econometrics 2, 111–a20.CrossRefGoogle Scholar
Greene, William H. (2003) Econometric Analysis. 5th edition, Upper Saddle River, NJ: Prentice Hall.Google Scholar
Jondeau, Eric and Le Bihan, Hervé (2005) Testing for the New Keynesian Phillips curve: Additional international evidence. Economic Modelling 22, 521–550.CrossRefGoogle Scholar
Kozicki, Sharon and Tinsley, Peter A. (2003) Alternative sources of the lag dynamics of inflation. In Price Adjustment and Monetary Policy: Proceedings of a Conference Held at the Bank of Canada, pp. 3–47, November 2002, Bank of Canada, Ottawa.CrossRefGoogle Scholar
Kurmann, André (2005) Quantifying the uncertainty about the fit of a New Keynesian pricing model. Journal of Monetary Economics 52, 1119–1134.CrossRefGoogle Scholar
Linde, Jesper (2005) Estimating New-Keynesian Phillips curves: A full information maximum likelihood approach. Journal of Monetary Economics 52, 1135–1149.CrossRefGoogle Scholar
McCallum, Bennett T. and Edward, Nelson (1999) Nominal income targeting in an open-economy optimizing model. Journal of Monetary Economics 43, 553–578.CrossRefGoogle Scholar
McCallum, Bennett T. and Edward, Nelson (2000) Monetary policy for an open economy: An alternative approach with optimizing agents and sticky prices. Oxford Review of Economic Policy 16, 74–91.CrossRefGoogle Scholar
Pratt, John W. and Schlaifer, Robert (1984) On the nature and discovery of structure (with discussion). Journal of the American Statistical Association 79, 9–21, 29–33.CrossRefGoogle Scholar
Pratt, John W. and Schlaifer, Robert (1988) On the interpretation and observation of laws. Journal of Econometrics, Annals 39, 23–52.CrossRefGoogle Scholar
Rudebusch, Glenn D. (2002) Assessing nominal income rules for monetary policy with model and data uncertainty. Economic Journal 112, 402–432.CrossRefGoogle Scholar
Rudd, Jeremy and Whelan, Karl (2005) New tests of the New Keynesian Phillips curve. Journal of Monetary Economics 52, 1167–1181.CrossRefGoogle Scholar
Sbordone, Argia (2007) Inflation Persistence: Alternative Interpretations and Policy Implications. Federal Reserve Bank of New York Staff Reports, No. 286.Google Scholar
Swamy, P.A. V.B. and George, S. Tavlas (1995) Random coefficient models: Theory and applications. Journal of Economic Surveys 9, 165–182.CrossRefGoogle Scholar
Swamy, P.A. V.B. and George, S. Tavlas (2001) Random coefficient models. In Baltagi, Badi H. (ed.), A Companion to Theoretical Econometrics, pp. 410–428. Malden, MA: Blackwell Publishers.Google Scholar
Swamy, P.A.V.B. and George, S. Tavlas (2005) Theoretical conditions under which monetary policies are effective and practical obstacles to their verification. Economic Theory 25, 999–1005.CrossRefGoogle Scholar
Swamy, P.A. V.B. and George, S. Tavlas (2007) The new Keynesian Phillips curve and inflation expectations: Re-specification and interpretation. Economic Theory 31, 293–306.CrossRefGoogle Scholar
Swamy, P.A. V.B., George, S. Tavlas and Mehta, Jatinder S. (2007) Methods of distinguishing between spurious regressions and causation. Journal of Statistical Theory and Applications 1, 83–96.Google Scholar
Swamy, P.A. V.B., Yaghi, Wisam, Mehta, Jatinder S., and Chang, I-Lok (2007) Empirical best linear unbiased prediction in misspecified and improved panel data models with an application to gasoline demand. Computational Statistics & Data Analysis 51, 3381–3392.CrossRefGoogle Scholar