The Small Open Economy New-Keynesian Phillips Curve: Specification, Structural Breaks and Robustness

Juan Aquino

No 2019-019, Working Papers from Banco Central de Reserva del Perú

Abstract: This paper empirically assesses the concern on whether the slope of the Phillips curve with respect to the output gap has decreased (i.e. the Phillips curve has “flattened”). We derive a generalized lag-augmented version of the New-Keynesian Phillips Curve for a small open economy (Galí and Monacelli, 2005) in order to specify a semi-structural estimation equation. For the Peruvian economy, such equation is estimated via the Generalized Method of Moments for the Inflation-Targeting regime (January 2002 - March 2019) and the post-crisis (January 2008 - March 2019) periods. We found that the slope parameter has remained stable for both estimation periods. Moreover, the expectation channel has gained more relevance for the post-crisis period, a result that is consistent with a lower persistence of inflation dynamics. Our results are also consistent with the presence of long run nominal homogeneity across estimation samples.

Keywords: New-Keynesian Phillips curve; small open economy; Generalized Method of Moments. (search for similar items in EconPapers)
JEL-codes: C22 C51 E31 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:rbp:wpaper:2019-019

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