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ML vs GMM Estimates of Hybrid Macroeconomic Models (With an Application to the "New Phillips Curve")

Eric Jondeau () and Hervé Le Bihan ()

Econometrics from University Library of Munich, Germany

Abstract: Many macroeconomic models (including the NKPC - "New Keynesian" Phillips Curve) involve hybrid equations, in which some variables depend on both their lags and leads. Hybrid models have produced conflicting empirical results: GMM (respectively ML) estimation find the forward- looking component to be large (small). A rationalization for this conflict is provided, allowing for two kinds of misspecifications (omitted dynamics and measurement error): we show analytically in a simple DGP that the GMM (ML) estimator overstates (understates) the size of the forward-looking component. Monte-Carlo experiments indicate this result has some generality. We use these findings to rationalize discrepancies observed in NKPC estimates.

Keywords: Rational-expectation model; GMM estimator; ML estimator; Inflation; New Phillips curve. (search for similar items in EconPapers)
JEL-codes: E31 C10 C22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2003-03-05
Note: Type of Document - Scientific Workplace; prepared on IBM PC ; to print on ; pages: 43; figures: included. This paper does not necessarily reflect the views of the Banque de France.
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Related works:
Working Paper: ML vs GMM Estimates of Hybrid Macroeconomic Models (With an Application to the "New Phillips Curve") (2004)
Working Paper: ML vs GMM Estimates of Hybrid Macroeconomic Models (With an Application to the New Phillips Curve) (2003) Downloads
Working Paper: ML vs GMM Estimates of Hybrid Macroeconomic Models (With an Application to the "New Phillips Curve") (2003) Downloads
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