Interpreting the evidence for New Keynesian models of inflation dynamics
Ragnar Nymoen (),
Anders Rygh Swensen and
Eivind Tveter Additional contact information Ragnar Nymoen: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Anders Rygh Swensen: Dept. og Mathematics, University of Oslo, Postal: Department of Mathematics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Eivind Tveter: Statistics Norway
We present a framework for interpretation of the empirical results of New Keynesian models of inflation dynamics. Both the rational expectations solution of the structural New Keynesian Phillips curve, NKPC, and the reduced form VAR analysis of the multivariate time series properties give insight about the joint implications of the evidence in the NKPC literature. For example, we show that the unit-root form of non-stationary may be implied for inflation even though the econometric model initally assumed stationarity. We point out and suggest a correction to an error in the literature regarding the existence or not of a rational expectations solution in the case of homogeneity and forward-dominance.