Empirical Evidence on Inflation Expectations in the New Keynesian Phillips Curve

Sophocles Mavroeidis, Mikkel Plagborg-Moller and James H. Stock

Scholarly Articles from Harvard University Department of Economics

Abstract: We review the main identification strategies and empirical evidence on the role of expectations in the New Keynesian Phillips curve, paying particular attention to the issue of weak identification. Our goal is to provide a clear understanding of the role of expectations that integrates across the different papers and specifications in the literature. We discuss the properties of the various limited-information econometric methods used in the literature and provide explanations of why they produce conflicting results. Using a common dataset and a flexible empirical approach, we find that researchers are faced with substantial specification uncertainty, as different combinations of various a priori reasonable specification choices give rise to a vast set of point estimates. Moreover, given a specification, estimation is subject to considerable sampling uncertainty due to weak identification. We highlight the assumptions that seem to matter most for identification and the configuration of point estimates. We conclude that the literature has reached a limit on how much can be learned about the New Keynesian Phillips curve from aggregate macroeconomic time series. New identification approaches and new datasets are needed to reach an empirical consensus.

Date: 2014
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (234)

Published in Journal of Economic Literature

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Related works:
Journal Article: Empirical Evidence on Inflation Expectations in the New Keynesian Phillips Curve (2014)
Working Paper: Empirical Evidence on Inflation Expectations in the New Keynesian Phillips Curve
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