Identifying the New Keynesian Phillips Curve

James Nason () and Gregor W. Smith

No 1026, Working Papers from Queen's University, Department of Economics

Abstract: Phillips curves are central to discussions of inflation dynamics and monetary policy. New Keynesian Phillips curves describe how past inflation, expected future inflation, and a measure of real marginal cost or an output gap drive the current inflation rate. This paper studies the (potential) weak identification of these curves under GMM and traces this syndrome to a lack of persistence in either exogenous variables or shocks. We employ analytic methods to understand the identification problem in several statistical environments: under strict exogeneity, in a vector autoregression, and in the canonical three-equation, New Keynesian model. Given U.S., U.K., and Canadian data, we revisit the empirical evidence and construct tests and confidence intervals based on exact and pivotal Anderson-Rubin statistics that are robust to weak identification. These tests find little evidence of forward-looking inflation dynamics.

Keywords: Phillips curve; Keynesian; identification; inflation (search for similar items in EconPapers)
JEL-codes: E31 C32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
Date: 2005-01
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http://www.econ.queensu.ca/working_papers/papers/qed_wp_1026.pdf First version 2005 (application/pdf)

Related works:
Working Paper: Identifying the New Keynesian Phillips Curve (2005)
Journal Article: Identifying the new Keynesian Phillips curve (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:qed:wpaper:1026

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