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Instrument selection for estimation of a forward-looking Phillips Curve

Author

Listed:
  • Berriel, Tiago
  • Medeiros, Marcelo C.
  • Sena, Marcelo J.

Abstract

We show that data-driven instrument selection based on the LASSO estimator can perform well comparative to the usual ad hoc instrument set for single equation estimation of a forward-looking Phillips Curve, when the overall identification condition is strong or in cases when the instruments are not very weak. We conclude that in face of model uncertainty and/or some potentially weak instruments within a large number of candidates, data-driven selection may provide a disciplined and more reliable estimation strategy.

Suggested Citation

  • Berriel, Tiago & Medeiros, Marcelo C. & Sena, Marcelo J., 2016. "Instrument selection for estimation of a forward-looking Phillips Curve," Economics Letters, Elsevier, vol. 145(C), pages 123-125.
    • Handle: RePEc:eee:ecolet:v:145:y:2016:i:c:p:123-125
    DOI: 10.1016/j.econlet.2016.05.032
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    References listed on IDEAS

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    Cited by:

    1. Dovì, Max-Sebastian & Koester, Gerrit & Nickel, Christiane, 2021. "Addressing the endogeneity of slack in Phillips Curves," Working Paper Series 2619, European Central Bank.

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    More about this item

    Keywords

    Instruments; Model selection; Shrinkage;
    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
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation

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