The New Keynesian Framework for a Small Open Economy with Structural Breaks: Empirical Evidence from Peru

Walter Bazan-Palomino and Gabriel Rodríguez
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Walter Bazan-Palomino: Departamento de Economía - Pontificia Universidad Católica del Perú

No 2014-384, Documentos de Trabajo / Working Papers from Departamento de Economía - Pontificia Universidad Católica del Perú

Abstract: We present evidence from Peru that The New Keynesian Phillips Curve, Dynamic IS and Taylor Rule derived by GalÌ and Monacelli (2005) are unstable. The results from methodology of Bai and Perron (2003) suggest that the change of the policy rule (January-2006 and May-2009) induces a break in the ináation process (January-2008) and in the market equation (October-2008); the latter due to the existence of nominal frictions and incomplete information in the Peruvian economy. Moreover, Qu and Perron (2007) estimation rea¢ rms that there are breaks in the entire reduced system (May-2008 and May-2010). In both cases, the channel of expectations is strengthened since 2008 and it is related to changes in the monetary policy during those years. JEL Classification-JEL: C32, C51, E31

Keywords: Structural Breaks; New Keynesian Phillips Curve; Dynamic IS; Taylor Rule (search for similar items in EconPapers)
Pages: 30 pages
Date: 2014
New Economics Papers: this item is included in nep-mac and nep-mon
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Journal Article: The New Keynesian framework for a small open economy with structural breaks: Empirical evidence from Peru (2018)
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