ML vs GMM Estimates of Hybrid Macroeconomic Models (With an Application to the "New Phillips Curve")

Eric JONDEAU and Hervé LE BIHAN
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Eric JONDEAU: Banque de France and ERUDITE Universite Paris 12 Val-de-Marne

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Abstract: Many macroeconomic models (including the NKPC - "New Keynesian" Phillips Curve) involve hybrid equations, in which some variables depend on both their lags and leads. Hybrid models have produced conflicting empirical results: GMM (respectively ML) estimation find the forward- looking component to be large (small). A rationalization for this conflict is provided, allowing for two kinds of misspecifications (omitted dynamics and measurement error): we show analytically in a simple DGP that the GMM (ML) estimator overstates (understates) the size of the forward- looking component. Monte-Carlo experiments indicate this result has some generality. We use these findings to rationalize discrepancies observed in NKPC estimates.

Keywords: Rational-expectation model; GMM estimator; ML estimator; Inflation; New Phillips curve. (search for similar items in EconPapers)
JEL-codes: C10 C22 E31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-mac
Date: Written 2003-03-06
Note: Type of Document - Scientific Workplace; prepared on PC; to print on ; pages: 43 ; figures: included. This paper does not necessarily reflect the views of the Banque de France.
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Related works:
Working Paper: ML vs GMM Estimates of Hybrid Macroeconomic Models (With an Application to the "New Phillips Curve") (2003)
Working Paper: ML vs GMM Estimates of Hybrid Macroeconomic Models (With an Application to the "New Phillips Curve") (2004)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpem:0303006

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