Estimating the New Keynesian Phillips Curve for Tunisia: Empirical Issues

Samir Ben Ali

Middle East Development Journal, 2013, vol. 5, issue 3, 1350016-1-1350016-17

Abstract: In this paper, we present empirical estimations of the new Keynesian Phillips curve (NKPC) for Tunisia using the generalized method of moments. We study empirical issues related to measuring variables of the theoretical model, and the impact of choices made at this level on its empirical validation. Our results support the hybrid version of the NKPC, with higher fraction of the forward-looking component. In addition, we establish the sensitivity of the estimation results to the choice of the driving variable measure. Our finding is that the success of the output gap variable in the validation of the theoretical relationship is conditional on the implemented measure, and that the deviation of the real exchange rate as a driving variable could be a good choice, due to the openness degree of the Tunisian economy.

Date: 2013
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DOI: 10.1142/S1793812013500168

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