Traditional and New Keynesian Dynamic Models for Potential Output and Inflation Rate

Paolo Bonomolo

Rivista di Politica Economica, 2009, vol. 99, issue 4, 65-88

Abstract: This paper uses the Kalman filter to estimate potential output as a latent process. We estimate two Dynamic Linear Models, comparing the results obtained through a traditional and a New Keynesian model. We verify that the traditional measures of output gap, even if usually applied in the estimation of the New Keynesian Phillips curve, are not consistent with the theory. We propose a New Keynesian measure that overcomes this limit. We suggest it as an alternative to the use of marginal costs.

Keywords: Kalman filter; new Keynesian Phillips curve; output gap; unobserved component (search for similar items in EconPapers)
JEL-codes: C32 E31 E32 (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:rpo:ripoec:v:99:y:2009:i:4:p:65-88

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