Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5098936 | Journal of Economic Dynamics and Control | 2010 | 17 Pages |
Abstract
Several authors have questioned the evidence claimed by Galà and Gertler (1999) and Galà et al. (2001) that a hybrid version of the new Keynesian Phillips curve approximates European and US inflation dynamics quite well. We re-examine the evidence using the vector autoregressive framework and likelihood based methods, paying particular attention to the stationary and nonstationary, and possibly cointegrated, nature of variables involved. Our results show that the exact as well as the inexact form of the hybrid NKPC are clearly at odds with the European data. On the other hand, Galà and Gertler (1999) finding that the inexact hybrid NKPC is a “good first approximation” to the US inflation dynamics seems less at odds with the data. However, the assumption of the model that the stochastic term forms a sequence of innovations may be problematic as we find indication of autocorrelation in the estimated residuals. The exact form of the hybrid NKPC is firmly rejected by the US data.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
PÃ¥l Boug, Ã
dne Cappelen, Anders Rygh Swensen,