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The New Keynesian Phillips Curve Tested on OECD Panel Data

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  • Bjørnstad, Roger
  • Nymoen, Ragnar

Abstract

Using a panel data set for OECD countries we replicate the typical features of the New Keynesian Phillips curve models (NPCs) that have been estimated on country data. While this corroborates the NPC also on the macro panel data set, a different conclusion is reached when we test whether the NPC encompasses an existing model of inflation which is without feed-forward terms, but which allows for other adjustment factors than the NPC. We find that the NPC?s expected rate of future inflation and real marginal costs are weak explanatory variables, and that their statistical significance in the typical NPC is due to correlation with the equilibrium correction terms that are implied by the existing inflation model. Our results are in line with the relatively few encompassing studies that exist on country and area data.

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  • Bjørnstad, Roger & Nymoen, Ragnar, 2008. "The New Keynesian Phillips Curve Tested on OECD Panel Data," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 2, pages 1-18.
    • Handle: RePEc:zbw:ifweej:7349
    DOI: 10.5018/economics-ejournal.ja.2008-23
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    Cited by:

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    2. David Hendry & Jennifer L. Castle & Jurgen A. Doornik, 2010. "Testing the Invariance of Expectations Models of Inflation," Economics Series Working Papers 510, University of Oxford, Department of Economics.
    3. Boug, Pål & Cappelen, Adne & Swensen, Anders Rygh, 2010. "The new Keynesian Phillips curve revisited," Journal of Economic Dynamics and Control, Elsevier, vol. 34(5), pages 858-874, May.
    4. Todorović, Jadranka Đurović & Tomić, Zoran & Denić, Nebojša & Petković, Dalibor & Kojić, Nenad & Petrović, Jelena & Petković, Biljana, 2018. "Applicability of Newton’s law of cooling in monetary economics," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 494(C), pages 209-217.
    5. Pål Boug & Ådne Cappelen & Torbjørn Eika, 2013. "Exchange Rate Pass-through in a Small Open Economy: the Importance of the Distribution Sector," Open Economies Review, Springer, vol. 24(5), pages 853-879, November.
    6. Inozemtsev, E. & Krotova, Yu., 2024. "Phillips curve with spatial effects based on Russian regional data," Journal of the New Economic Association, New Economic Association, vol. 63(2), pages 35-56.
    7. Nymoen, Ragnar & Swensen, Anders Rygh & Tveter, Eivind, 2012. "Interpreting the evidence for New Keynesian models of inflation dynamics," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 253-263.
    8. Jennifer L. Castle & Jurgen A. Doornik & David F. Hendry & Ragnar Nymoen, 2014. "Misspecification Testing: Non-Invariance of Expectations Models of Inflation," Econometric Reviews, Taylor & Francis Journals, vol. 33(5-6), pages 553-574, August.
    9. Ordóñez, Javier & Jusélius, Katarina, 2009. "Balassa-Samuelson and Wage, Price and Unemployment Dynamics in the Spanish Transition to EMU Membership," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-30.
    10. Berk, Jan Marc & Swank, Job, 2011. "Price level convergence and regional Phillips curves in the US and EMU," Journal of International Money and Finance, Elsevier, vol. 30(5), pages 749-763, September.
    11. Pål Boug & Ådne Cappelen & Anders R. Swensen, 2011. "The new Keynesian Phillips curve: Does it fit Norwegian data?," Discussion Papers 652, Statistics Norway, Research Department.
    12. Christopher Tsoukis & George Kapetanios & Joseph Pearlman, 2011. "Elusive Persistence: Wage And Price Rigidities, The New Keynesian Phillips Curve And Inflation Dynamics," Journal of Economic Surveys, Wiley Blackwell, vol. 25(4), pages 737-768, September.
    13. Gomes, Orlando, 2012. "Thought experimentation and the Phillips curve," Research in Economics, Elsevier, vol. 66(1), pages 45-64.
    14. Lena Vogel, 2008. "The Relationship between the Hybrid New Keynesian Phillips Curve and the NAIRU over Time," Macroeconomics and Finance Series 200803, University of Hamburg, Department of Socioeconomics.
    15. Pål Boug & Ådne Cappelen & Torbjørn Eika, 2013. "The importance of the distribution sector for exchange rate pass-through in a small open economy. A large scale macroeconometric modelling approach," Discussion Papers 731, Statistics Norway, Research Department.

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    More about this item

    Keywords

    New Keynesian Phillips curve; forward-looking price setting; panel data model; encompassing;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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