Estimates of the US Phillips curve with the general to specific method

B. Rao and Antonio Paradiso

MPRA Paper from University Library of Munich, Germany

Abstract: This paper distinguishes between the long run and short run Phillips curve (PC) and uses the micro theory based specification, with forward looking expectations, for the long run PC. The long run and the implied short run dynamic equations are estimated in one step with the general to specific method (GETS). Our approach has two distinct advantages. Firstly, classical estimation methods can be used, irrespective of the stationarity properties of the variables. Secondly, instead of arbitrarily adding the lagged inflation rate to the theory based long run PC to capture persistence in inflation, our approach shows that persistence effects can also be captured through the dynamic adjustment equations. This has an added advantage because it offers a more flexible lag structure to estimate dynamic adjustments compared to the partial adjustment process in the hybrid NKPC.

Keywords: US New Keynesian Phillips Curve; Forward looking expectations; Alternative measures of the Driving Forces; GETS (search for similar items in EconPapers)
JEL-codes: B22 C22 E31 (search for similar items in EconPapers)
Date: 2011-01-16
New Economics Papers: this item is included in nep-cba and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:28411

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