EconPapers    
Economics at your fingertips  
 

Observed Inflation Forecasts and the New Keynesian Phillips Curve

Chengsi Zhang (), Denise Osborn () and Dong Heon Kim ()

Centre for Growth and Business Cycle Research Discussion Paper Series from Economics, The Univeristy of Manchester

Abstract: Estimating the micro-founded New Keynesian Phillips Curve using rational inflation expectation proxies has often found that the output gap is not a valid measure of inflation pressure. This paper investigates the empirical success of the NKPC in explaining US inflation, using observed measures of inflation expectations and taking account of serial correlation in the stylized NKPC. Contrary to recent results indicating no role for the GDP gap, we find it to be a statistically significant driving variable for inflation while labor income share is generally insignificant. The paper also develops an extended model in which serial correlation is absent and the output gap remains a valid inflation driving force. In most of our estimations, however, lagged inflation dominates the role of inflation expectations, casting doubt on the extent to which price setting is forward-looking over the period 1968 to 2005. From an econometric perspective, the paper uses GMM estimation to account for endogeneity while also addressing concerns raised in recent studies about weak instrumental variables used in estimating NKPC models.

New Economics Papers: this item is included in nep-cba, nep-ecm, nep-for, nep-mac and nep-mon
Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://hummedia.manchester.ac.uk/schools/soss/cgbc ... papers/dpcgbcr79.pdf (application/pdf)

Related works:
Journal Article: Observed Inflation Forecasts and the New Keynesian Phillips Curve* (2009) Downloads
Working Paper: Observed Inflation Forecasts and the New Keynesian Phillips Curve (2008) Downloads
Working Paper: Observed Inflation Forecasts and the New Keynesian Phillips Curve (2006) 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:man:cgbcrp:79

Access Statistics for this paper

More papers in Centre for Growth and Business Cycle Research Discussion Paper Series from Economics, The Univeristy of Manchester Contact information at EDIRC.
Bibliographic data for series maintained by Marianne Sensier ().

 
Page updated 2019-08-11
Handle: RePEc:man:cgbcrp:79