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A new Keynesian framework and wage and price dynamics in the USA

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  • Bjørnar Karlsen Kivedal

    (Østfold University College
    Norwegian University of Science and Technology)

Abstract

This paper investigates theoretical implications from a new Keynesian model focusing on the labor market, by imposing them as testable restrictions in an estimated vector error correction model on US data from 1982Q3 to 2016Q1. By this, I conduct an important, but rarely addressed, step in assessing the empirical relevance of a theoretical new Keynesian model. Another advantage of this approach is that the cycle and trend components of the data are separated when imposing the testable restrictions, such that there is no need to filter the data series prior to estimation. The results show that most of the properties pertaining to the theoretical model cannot be rejected when imposed as restrictions. The new Keynesian model on the labor market is thus found to be empirically relevant. Furthermore, the estimated econometric model explains a large degree of the wage and price dynamics in the USA, such that the paper also provides an estimated macroeconometric model.

Suggested Citation

  • Bjørnar Karlsen Kivedal, 2018. "A new Keynesian framework and wage and price dynamics in the USA," Empirical Economics, Springer, vol. 55(3), pages 1271-1289, November.
    • Handle: RePEc:spr:empeco:v:55:y:2018:i:3:d:10.1007_s00181-017-1320-8
    DOI: 10.1007/s00181-017-1320-8
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    Cited by:

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    More about this item

    Keywords

    Cointegration; New Keynesian models; Steady state; Wages; Prices; Unemployment; Error correction;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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