Testing the New Keynesian Phillips Curve Through Vector Autoregressive Models: Results from the Euro Area*

Luca Fanelli

56 citations0/0 files storedOxford Bulletin of Economics and Statistics

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

Abstract

Abstract This paper addresses the issue of testing the ‘hybrid’ New Keynesian Phillips curve (NKPC) through vector autoregressive (VAR) systems and likelihood methods, giving special emphasis to the case where the variables are non‐stationary. The idea is to use a VAR for both the inflation rate and the explanatory variable(s) to approximate the dynamics of the system and derive testable restrictions. Attention is focused on the ‘inexact’ formulation of the NKPC. Empirical results over the period 1971–98 show that the NKPC is far from providing a ‘good first approximation’ of inflation dynamics in the Euro area.

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References

1983Staggered prices in a utility-maximizing framework 1995Likelihood-Based Inference in Cointegrated Vector Autoregressive Models 1999The Science of Monetary Policy: A New Keynesian Perspective 2000Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory*1996Staggered Prices in a Utility-Maximizing Framework 1999Inflation dynamics: A structural econometric analysis 1990Inference in Linear Time Series Models with some Unit Roots 2002Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve

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