Estimating New-Keynesian Phillips Curves: A Full Information Maximum Likelihood Approach

Jesper Lindé

No 129, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: The New-Keynesian Phillips curve has recently become an important ingredient in monetary policy models. However, using limited information methods, the empirical support for the New-Keynesian Phillips curve appear to be mixed. This paper argues, by means of Monte Carlo simulations with a simple New-Keynesian sticky price model, that single equations methods, e.g. GMM, are likely to produce imprecise and biased estimates. Then, it is argued that estimating the model with full information maximum likelihood (FIML) is a useful way of obtaining better estimates. Finally, a version of the model used in the Monte Carlo simulations is estimated on U.S. data with FIML and although the pure forward-looking New-Keynesian Phillips curve is rejected, a version with both forward- and backward-looking components provides a reasonable approximation of U.S. inflation dynamics.

Keywords: Monetary policy rule; New-Keynesian Phillips curve; Rational expectations IS-curve; Backward-looking Phillips curve; Measurement errors; Full Information Maximum Likelihood estimation (search for similar items in EconPapers)
JEL-codes: C22 C52 E52 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2001-12-01, Revised 2005-03-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Published in Journal of Monetary Economics, 2005, pages 1135-1149.

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Journal Article: Estimating New-Keynesian Phillips curves: A full information maximum likelihood approach (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:rbnkwp:0129

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