Testing the Invariance of Expectations Models of Inflation

Ragnar Nymoen (), Jennifer Castle, Jurgen Doornik and David Hendry

No 21/2010, Memorandum from Oslo University, Department of Economics

Abstract: The new-Keynesian Phillips curve (NKPC) includes expected future inflation to explain current inflation. Such models are estimated by replacing the expected value by the future outcome, using InstrumentalVariables or Generalized Method of Momentsmethods. However, the underlying theory does not allow for various non-stationarities–although crises, breaks and regimes shifts are relatively common. We analytically investigate the consequences for NKPC estimation of breaks in data processes, then apply the new technique of impulse-indicator saturation to salient published studies to check their viability. The coefficient of the future value becomes insignificant after modelling breaks.

Keywords: New-Keynesian Phillips curve; Inflation expectations; Structural breaks; Impulse-indicator saturation. (search for similar items in EconPapers)
JEL-codes: C22 C51 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2010-11-11
New Economics Papers: this item is included in nep-cba and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Working Paper: Testing the Invariance of Expectations Models of Inflation (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:osloec:2010_021

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