EconPapers    
Economics at your fingertips  
 

The New Keynesian Phillips Curve and Lagged Inflation: A Case of Spurious Correlation?

George Hondroyiannis (), P.A.V.B. Swamy and George Tavlas ()
Additional contact information
P.A.V.B. Swamy: US Bureau of Labour Statistics

No 57, Working Papers from Bank of Greece

Abstract: The New Keynesian Phillips Curve (NKPC) specifies a relationship between inflation and a forcing variable and the current period’s expectation of future inflation. Most empirical estimates of the NKPC, typically based on Generalized Method of Moments (GMM) estimation, have found a significant role for lagged inflation, producing a “hybrid” NKPC. Using U.S. quarterly data, this paper examines whether the role of lagged inflation in the NKPC might be due to the spurious outcome of specification biases. Like previous investigators, we employ GMM estimation and, like those investigators, we find a significant effect for lagged inflation. We also use time varying coefficient (TVC) estimation, a procedure that allows us to directly confront specification biases and spurious relationships. Using three separate measures of expected inflation, we find strong support for the view that, under TVC estimation, the coefficient on expected inflation is near unity and that the role of lagged inflation in the NKPC is spurious.

Keywords: New Keynesian Phillips curve; time-varying coefficients; spurious relationships. (search for similar items in EconPapers)
JEL-codes: C51 E31 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2007-02
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11) Track citations by RSS feed

Downloads: (external link)
http://www.bankofgreece.gr/BogEkdoseis/Paper200757.pdf Full Text (application/pdf)

Related works:
Journal Article: The New Keynesian Phillips Curve and Lagged Inflation: A Case of Spurious Correlation? (2009) Downloads
Working Paper: The New Keynesian Phillips Curve and Lagged Inflation: A Case of Spurious Correlation? (2008) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bog:wpaper:57

Access Statistics for this paper

More papers in Working Papers from Bank of Greece Contact information at EDIRC.
Bibliographic data for series maintained by Christina Tsochatzi ().

 
Page updated 2020-06-04
Handle: RePEc:bog:wpaper:57