International Evidence on the Efficacy of new-Keynesian Models of Inflation Persistence

Norman Swanson (), Oleg Korenok and Stanislav Radchenko ()
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Norman Swanson: Rutgers University

Departmental Working Papers from Rutgers University, Department of Economics

Abstract: In this paper we take an agnostic view of the Phillips curve debate, and carry out an empirical investigation of the relative and absolute efficacy of Calvo sticky price (SP), sticky information (SI), and sticky price with indexation models (SPI), with emphasis on their ability to mimic inflationary dynamics. In particular, we look at evidence for a group of 13 OECD countries, and we consider three alternative measures of inflationary pressure, including the output gap, labor share, and unemployment. We find that the Calvo SP and the SI models essentially perform no better than a strawman constant inflation model, when used to explain inflation persistence. Indeed, virtually all inflationary dynamics end up being captured by the residuals of the estimated versions of these models. We find that SPI model is preferable because it captures the type of strong inflationary persistence that has in the past characterized the economies of the countries in our sample. However, two caveats to this conclusion are that improvement in performance is driven mostly by the time series part of the model (i.e. lagged inflation) and that the SPI model overemphasizes inflationary persistence. Thus, there appears to be room for improvement via either modified versions of the above models, or via development of new models, that better “track” inflation persistence.

Keywords: empirical distribution; model selection; sticky information; sticky price (search for similar items in EconPapers)
JEL-codes: C32 E12 E3 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2006-09-22
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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http://www.sas.rutgers.edu/virtual/snde/wp/2006-17.pdf (application/pdf)

Related works:
Working Paper: International Evidence on the Efficacy of new-Keynesian Models of Inflation Persistence (2011)
Journal Article: International evidence on the efficacy of new-Keynesian models of inflation persistence (2010)
Journal Article: International evidence on the efficacy of new‐Keynesian models of inflation persistence (2010)
Working Paper: International Evidence on the Efficacy of new-Keynesian Models of Inflation Persistence (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:rut:rutres:200617

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