Posterior-Predictive Evidence on US Inflation using Phillips Curve Models with Non-Filtered Time Series

Nalan Baştürk, Cem Çakmaklı, Sanli Ceyhan Darendeli and Herman van Dijk

No 13-011/III, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: Changing time series properties of US inflation and economic activity are analyzed within a class of extended Phillips Curve (PC) models. First, the misspecification effects of mechanical removal of low frequency movements of these series on posterior inference of a basic PC model are analyzed using a Bayesian simulation based approach. Next, structural time series models that describe changing patterns in low and high frequencies and backward as well as forward inflation expectation mechanisms are incorporated in the class of extended PC models. Empirical results indicate that the proposed models compare favorably with existing Bayesian Vector Autoregressive and Stochastic Volatility models in terms of fit and predictive performance. Weak identification and dynamic persistence appear less important when time varying dynamics of high and low frequencies are carefully modeled. Modeling inflation expectations using survey data and adding level shifts and stochastic volatility improves substantially in sample fit and out of sample predictions. No evidence is found of a long run stable cointegration relation between US inflation and marginal costs. Tails of the complete predictive distributions indicate an increase in the probability of disinflation in recent years.

Keywords: New Keynesian Phillips curve; unobserved components; level shifts; inflation expectations (search for similar items in EconPapers)
JEL-codes: C11 C32 E31 E37 (search for similar items in EconPapers)
Date: 2013-01-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://papers.tinbergen.nl/13011.pdf (application/pdf)

Related works:
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:tin:wpaper:20130011

Access Statistics for this paper

More papers in Tinbergen Institute Discussion Papers from Tinbergen Institute Contact information at EDIRC.
Bibliographic data for series maintained by Tinbergen Office +31 (0)10-4088900 ().