The Empirical (ir)Relevance of the New Keynesian Phillips Curve

Gunnar Bårdsen · Eilev Sandvik Jansen · Ragnar Nymoen

14 citations0/0 files storedRePEc: Research Papers in Economics

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Monetary Policy and Economic Impact Economic Theory and Policy Economic theories and models

Abstract

We give an appraisal of the New Keynesian Phillips curve (NPC) as an empirical model of European inflation. We show that existing evidence reported in favour of the NPC on Euro-area and country data is due to a corroborative research strategy. In particular, goodness-of-fit is a weak criterion, since the NPC-fit is well approximated by a random walk. Instead we report the outcome of more critical tests, and the importance of modelling a system that includes the forcing variables as well as the rate of inflation is emphasized.Finally, encompassing tests are applied to open economy versions of the NPC for UK and Norway.

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References

1983Staggered prices in a utility-maximizing framework 1999The Science of Monetary Policy: A New Keynesian Perspective 1999Inflation dynamics: A structural econometric analysis 1980Aggregate Dynamics and Staggered Contracts 1995Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation 1982Sticky Prices in the United States 2000Open-Economy Inflation Targeting 2016Staggered Wage Setting in a Macro Model

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