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Efficient Inference with Time-Varying Information and the New Keynesian Phillips Curve

Bertille Antoine () and Otilia Boldea ()

Discussion Papers from Department of Economics, Simon Fraser University

Abstract: Decades of empirical evidence suggest that many macroeconometric and financial models are subject to both instability and identification problems. In this paper, we address both issues under the unified framework of time-varying information, which includes changes in instrument strength, changes in the second moment of instruments, and changes in the variance of moment conditions. We develop a new estimation method that exploits these changes to increase the efficiency of the estimates of the (stable) structural parameters. We estimate a New Keynesian Phillips Curve and obtain more precise estimates of the price indexation parameters than standard methods. An extensive simulation study shows that our method delivers substantial efficiency gains in finite samples.

Keywords: GMM; Weak instruments; Break point; Change in identification strength (search for similar items in EconPapers)
JEL-codes: C13 C22 C26 C36 C51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm
Date: 2015-06-04, Revised 2016-08-25
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Handle: RePEc:sfu:sfudps:dp15-04