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Autoregression-based estimation of the new Keynesian Phillips curve

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  • Lanne, Markku
  • Luoto, Jani

Abstract

We propose an estimation method of the new Keynesian Phillips curve (NKPC) based on a univariate noncausal autoregressive model for the inflation rate. By construction, our approach avoids a number of problems related to the GMM estimation of the NKPC. We estimate the hybrid NKPC with quarterly U.S. data (1955:1–2010:3), and both expected future inflation and lagged inflation are found important in determining the inflation rate, with the former clearly dominating. Moreover, inflation persistence turns out to be intrinsic rather than inherited from a persistent driving process.

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  • Lanne, Markku & Luoto, Jani, 2013. "Autoregression-based estimation of the new Keynesian Phillips curve," Journal of Economic Dynamics and Control, Elsevier, vol. 37(3), pages 561-570.
    • Handle: RePEc:eee:dyncon:v:37:y:2013:i:3:p:561-570
    DOI: 10.1016/j.jedc.2012.09.008
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    Cited by:

    1. Markku Lanne & Jani Luoto, 2017. "A New Time‐Varying Parameter Autoregressive Model for U.S. Inflation Expectations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(5), pages 969-995, August.
    2. Philip Hans Franses, 2019. "On inflation expectations in the NKPC model," Empirical Economics, Springer, vol. 57(6), pages 1853-1864, December.
    3. Ooft, Gavin & Bhaghoe, Sailesh & Hans Franses, Philip, 2021. "Forecasting annual inflation in Suriname," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 73(C).
    4. Medel, Carlos, 2015. "Inflation Dynamics and the Hybrid Neo Keynesian Phillips Curve: The Case of Chile," MPRA Paper 62609, University Library of Munich, Germany.
    5. Nyberg, Henri & Saikkonen, Pentti, 2014. "Forecasting with a noncausal VAR model," Computational Statistics & Data Analysis, Elsevier, vol. 76(C), pages 536-555.
    6. Weifeng Jin, 2023. "Quantile Autoregression-based Non-causality Testing," Papers 2301.02937, arXiv.org.
    7. Markku Lanne & Jani Luoto, 2019. "A comment on ‘on inflation expectations in the NKPC model’," Empirical Economics, Springer, vol. 57(6), pages 1865-1867, December.
    8. Phiri, Andrew, 2015. "Examining asymmetric effects in the South African Philips curve: Evidence from logistic smooth transition regression (LSTR) models," MPRA Paper 64487, University Library of Munich, Germany.
    9. Hecq, Alain & Issler, João Victor & Voisin, Elisa, 2024. "A short term credibility index for central banks under inflation targeting: An application to Brazil," Journal of International Money and Finance, Elsevier, vol. 143(C).
    10. Hecq Alain & Sun Li, 2021. "Selecting between causal and noncausal models with quantile autoregressions," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 25(5), pages 393-416, December.
    11. Zhang, Chengsi & Murasawa, Yasutomo, 2011. "Output gap measurement and the New Keynesian Phillips curve for China," Economic Modelling, Elsevier, vol. 28(6), pages 2462-2468.
    12. Hecq, Alain & Issler, João Victor & Telg, Sean, 2017. "Mixed Causal-Noncausal Autoregressions with Strictly Exogenous Regressors," MPRA Paper 80767, University Library of Munich, Germany.
    13. Alain Hecq & Li Sun, 2019. "Identification of Noncausal Models by Quantile Autoregressions," Papers 1904.05952, arXiv.org.
    14. Alain Hecq & Sean Telg & Lenard Lieb, 2017. "Do Seasonal Adjustments Induce Noncausal Dynamics in Inflation Rates?," Econometrics, MDPI, vol. 5(4), pages 1-22, October.
    15. Kramkov, Viacheslav & Maksimov, Andrey, 2020. "Loan market markups and noncausal autoregressions," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 60, pages 48-69.

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    More about this item

    Keywords

    Noncausal time series; Non-Gaussian time series; Inflation; Phillips curve;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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