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Can The New Keynesian Phillips Curve Explain Inflation Gap Persistence
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Book Synopsis Can the New Keynesian Phillips Curve Explain Inflation Gap Persistence? by : Fang Yao
Download or read book Can the New Keynesian Phillips Curve Explain Inflation Gap Persistence? written by Fang Yao and published by . This book was released on 2010 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: Whelan (2007) found that the generalized Calvo-sticky-price model fails to replicate a typical feature of the empirical reduced-form Phillips curve - the positive dependence of inflation on its own lags. In this paper, I show hat it is the 4-period-Taylor-contract hazard function he chose that gives rise to this result. In contrast, an empirically-based aggregate price reset hazard function can generate simulated data that are consistent with inflation gap persistence found in US CPI data. I conclude that a non-constant price reset hazard plays a crucial role for generating realistic inflation dynamics. -- Inflation gap persistence ; Trend inflation ; New Keynesian Phillips curve ; Hazard function
Book Synopsis Can the New Keynesian Phillips Curve Explain Japanese Inflation Dynamics? by : Ichiro Muto
Download or read book Can the New Keynesian Phillips Curve Explain Japanese Inflation Dynamics? written by Ichiro Muto and published by . This book was released on 2006 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: We estimate a New Keynesian Phillips curve (NKPC) for Japan's economy. To obtain a better proxy of real marginal cost (RMC), we correct labor share by incorporating labor adjustment costs, material prices, and real wage rigidity. Our approach is unique in utilizing the information on firms' judgment about the labor gap, which implies the existence of labor adjustment costs. Our results show that the NKPC explains Japanese inflation dynamics quite well if we use the corrected proxy of RMC. Furthermore, we find that Japanese inflation persistence is mostly accounted for by the persistence of RMC itself rather than lagged inflation.--Publisher's description.
Book Synopsis Trend Inflation and Inflation Persistence in the New Keynesian Phillips Curve by :
Download or read book Trend Inflation and Inflation Persistence in the New Keynesian Phillips Curve written by and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis A Note on Inflation Persistence by : Steinar Holden
Download or read book A Note on Inflation Persistence written by Steinar Holden and published by . This book was released on 2001 with total page 13 pages. Available in PDF, EPUB and Kindle. Book excerpt: Macroeconomists have for some time been aware that the New Keynesian Phillips curve, though highly popular in the literature, cannot explain the persistence observed in actual inflation. We argue that two of the more prominent alternative formulations, the Fuhrer and Moore (1995) relative contracting model and the Blanchard and Katz (1999) reservation wage conjecture, are highly problematic. Fuhrer and Moore (1995)'s formulation generates inflation persistence, but this is a consequence of their assuming that workers care about the past real wages of other workers. Making the more reasonable assumption that workers care about the current real wages of other workers, one obtains the standard formulation with no inflation persistence. The Blanchard and Katz conjecture turns out to imply that inflation depends negatively on itself lagged, i.e. the opposite of the empirical regularity
Book Synopsis International Evidence on the Efficacy of New-Keynesian Models of Inflation Persistence by : Oleg Korenok
Download or read book International Evidence on the Efficacy of New-Keynesian Models of Inflation Persistence written by Oleg Korenok and published by . This book was released on 2007 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we take an agnostic view of the Phillips curve debate, and carry out an empirical investigation of the relative and absolute efficacy of Calvo sticky price (SP), sticky information (SI), and sticky price with indexation models (SPI), with emphasis on their ability to mimic inflationary dynamics. In particular, we look at evidence for a group of 13 OECD countries, and we consider three alternative measures of inflationary pressure, including the output gap, labor share, and unemployment. We find that the Calvo SP and the SI models essentially perform no better than a strawman constant inflation model, when used to explain inflation persistence. Indeed, virtually all inflationary dynamics end up being captured by the residuals of the estimated versions of these models. We find that SPI model is preferable because it captures the type of strong inflationary persistence that has in the past characterized the economies of the countries in our sample. However, two caveats to this conclusion are that improvement in performance is driven mostly by the time series part of the model (i.e. lagged inflation) and that the SPI model overemphasizes inflationary persistence. Thus, there appears to be room for improvement via either modified versions of the above models, or via development of new models, that better "track" inflation persistence.
Book Synopsis Microfoundations of Inflation Persistence in the New Keynesian Phillips Curve by : Marcelle Chauvet
Download or read book Microfoundations of Inflation Persistence in the New Keynesian Phillips Curve written by Marcelle Chauvet and published by . This book was released on 2015 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper proposes a dynamic stochastic general equilibrium model that endogenously generates inflation persistence. We assume that although firms change prices periodically, they face convex costs that preclude optimal adjustment. In essence, the model assumes that price stickiness arises from both the frequency and size of price adjustments. The model is estimated using Bayesian techniques, and the results strongly support both sources of price stickiness in the U.S. data. In contrast with traditional sticky price models, the framework yields inflation inertia, a delayed effect of monetary policy shocks on inflation, and the observed "reverse dynamic" correlation between inflation and economic activity.
Book Synopsis Intrinsic and Inherited Inflation Persistence by : Jeffrey C. Fuhrer
Download or read book Intrinsic and Inherited Inflation Persistence written by Jeffrey C. Fuhrer and published by . This book was released on 2005 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the now conventional view of the inflation process, the New Keynesian Phillips Curve (NKPC) captures most of the persistence in inflation. The sources of persistence are twofold. First, the "driving process" for inflation--the output gap or, more commonly, real marginal cost--is itself quite persistent, and a casual inspection of the NKPC reveals that inflation must "inherit" this persistence. Second, a modest amount of backward-looking or indexing behavior imparts some "intrinsic" persistence to inflation. This latter source is generally thought to be of less importance than the former, as the degree of autocorrelation in the driving processes is substantial. This paper shows that in practice inflation in the NKPC inherits very little of the persistence of the driving process, and, contrary to conventional wisdom, it is intrinsic persistence that constitutes the dominant source of persistence. The paper explores the reasons for this and links them to two empirical observations. First, it has been difficult to develop a sizable coefficient on the driving process in NKPCs. Second, the shock that enters the NKPC, while often difficult to motivate economically, is large and is critical in distinguishing the sources of inflation persistence. While these observations help to clarify the behavior of inflation in NKPCs, they raise other fundamental questions about how to model inflation.
Book Synopsis The New Keynesian Phillips Curve by : Paolo Guarda
Download or read book The New Keynesian Phillips Curve written by Paolo Guarda and published by . This book was released on 2020 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The New Keynesian Phillips curve (NPC) differs from the conventional expectations-augmented Phillips curve in that it is forward-looking and links inflation to a measure of marginal cost instead of unemployment or the output gap. More fundamentally, the NPC is derived from New Keynesian models that combine nominal rigidities with individual optimising behaviour and model-consistent (rational) expectations. Because the NPC is grounded in micro-theory (unlike the conventional expectations-augmented Phillips curve), it is robust to some forms of the Lucas critique and may serve to analyse the impact structural changes such as increased price flexibility may have on inflation. New Keynesian Phillips curve estimates for Luxembourg using the Galí and Gertler (1999) hybrid form suggest that firms change prices often but tend to use backward-looking rules-of-thumb instead of resetting prices optimally using forward-looking expectations. In terms of policy implications, although the results suggest prices in Luxembourg are relatively flexible, the prevalence of backward-looking price setting implies greater inflation persistence and a higher sacrifice ratio attached to disinflationary monetary policy. From the perspective of individual firms, backward-looking price setting may be a rational response in a very small open economy because of its vulnerability to external shocks. Small size and openness plausibly imply higher costs of collecting information and lower benefits from optimal price setting.
Book Synopsis Is There a Phillips Curve? A Full Information Partial Equilibrium Approach by : Mr.Roberto Piazza
Download or read book Is There a Phillips Curve? A Full Information Partial Equilibrium Approach written by Mr.Roberto Piazza and published by International Monetary Fund. This book was released on 2018-03-08 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: Empirical tests of the New Keynesian Phillips Curve have provided results often inconsistent with microeconomic evidence. To overcome the pitfalls of standard estimations on aggregate data, a Full Information Partial Equilibrium approach is developed to exploit sectoral level data. A model featuring sectoral NKPCs subject to a rich set of shocks is constructed. Necessary and sufficient conditions on the structural parameters are provided to allow sectoral idiosyncratic components to be linearly extracted. Estimation biases are corrected using the model's restrictions on the partial equilibrium propagation of idiosyncratic shocks. An application to the US, Japan and the UK rejects the purely forward looking, labor cost-based NKPC.
Book Synopsis Identifying the New Keynesian Phillips Curve by :
Download or read book Identifying the New Keynesian Phillips Curve written by and published by . This book was released on 2005 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: "Phillips curves are central to discussions of inflation dynamics and monetary policy. New Keynesian Phillips curves describe how past inflation, expected future inflation, and a measure of real marginal cost or an output gap drive the current inflation rate. This paper studies the (potential) weak identification of these curves under generalized methods of moments (GMM) and traces this syndrome to a lack of persistence in either exogenous variables or shocks. The authors employ analytic methods to understand the identification problem in several statistical environments: under strict exogeneity, in a vector autoregression, and in the canonical three-equation, New Keynesian model. Given U.S., U.K., and Canadian data, they revisit the empirical evidence and construct tests and confidence intervals based on exact and pivotal Anderson-Rubin statistics that are robust to weak identification. These tests find little evidence of forward-looking inflation dynamics"--Federal Reserve Bank of Atlanta web site.
Book Synopsis Time-Dependent Pricing and New Keynesian Phillips Curve by : Fang Yao
Download or read book Time-Dependent Pricing and New Keynesian Phillips Curve written by Fang Yao and published by . This book was released on 2016 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper explores what can be lost when assuming price adjustment is a time - independent (memoryless) process.I derive a generalized NKPC in an optinizing model with the non- constant hazard function and trend inflation. Memory emerges in the resulting Phillips curve through the presence of lagged inflation and lagged expectations. It nests the Calvo NKPC as a limitting case in the sense that the effect of both terms are canceled out by one another under the constant-hazard assumption. Furthermore, I find lagged inflation always has negative coefficients, thereby making it impossible to interpret inflation persistence as intrinsic to the model. The numerical evaluation shows that introducing trend inflation strengthens the effects of the increasing hazard function on the inflation dynamics . The model can jointly account for persistent dynamics of inflation and output, hump-shaped impulse responses of inflation to monetary shocks, and the fact that high trend inflation leads to more persistence in inflation but not for real variables.
Book Synopsis Elusive Persistence by : Christopher Tsoukis
Download or read book Elusive Persistence written by Christopher Tsoukis and published by . This book was released on 2011 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We review the main New Keynesian inflation equations that have arisen as a result of aggregation from individual firms' price rigidities. We find that, on the whole, they cannot account for inflation persistence, a key feature of the empirical dynamics of inflation, and with important policy implications. The only exceptions seem to be when indexation is allowed in price setting or when price stickiness is combined with wage rigidity and staggering.
Book Synopsis What Do New Keynesian Phillips Curves Imply for Price Level Targeting? by : Robert Dittmar
Download or read book What Do New Keynesian Phillips Curves Imply for Price Level Targeting? written by Robert Dittmar and published by . This book was released on 1999 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Phillips Curves and Unemployment Dynamics by : Marika Karanassou
Download or read book Phillips Curves and Unemployment Dynamics written by Marika Karanassou and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: "The conventional wisdom that inflation and unemployment are unrelated in the long-run implies that these phenomena can be analysed by separate branches of economics. The macro literature tries to explain inflation dynamics and estimates the NAIRU. The labour macro literature tries to explain unemployment dynamics and determine the real economic factors that drive the natural rate of unemployment. We show that the orthodox view that the New Keynesian Phillips curve is vertical in the long-run and that it cannot generate substantial inflation persistence relies on the implausible assumption of a zero interest rate. In the light of these results, we argue that a holistic framework is needed to jointly explain the evolution of inflation and unemployment"--Forschungsinstitut zur Zukunft der Arbeit web site.
Book Synopsis European Inflation Dynamics by : Jordi Galí
Download or read book European Inflation Dynamics written by Jordi Galí and published by . This book was released on 2001 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide evidence on the fit of the New Phillips Curve (NPQ for the Euro area over the period 1970-1998, and use it as a tool to compare the characteristics of European inflation dynamics with those observed in the U.S. We also analyze the factors underlying inflation inertia by examining the cyclical behavior of marginal costs, as well as that of its two main components, namely, labor productivity and real wages. Some of the findings can be summarized as follows: (a) the NPC fits Euro area data very well, possibly better than U.S. data, (b) the degree of price stickiness implied by the estimates is substantial, but in line with survey evidence and U.S. estimates, (c) inflation dynamics in the Euro area appear to have a stronger forward- looking component (i.e., less inertia) than in the U.S., (d) labor market frictions, as manifested in the behavior of the wage markup, appear to have played a key role in shaping the behavior of marginal costs and, consequently, inflation in Europe.
Book Synopsis Inflation Expectations by : Peter J. N. Sinclair
Download or read book Inflation Expectations written by Peter J. N. Sinclair and published by Routledge. This book was released on 2009-12-16 with total page 402 pages. Available in PDF, EPUB and Kindle. Book excerpt: Inflation is regarded by the many as a menace that damages business and can only make life worse for households. Keeping it low depends critically on ensuring that firms and workers expect it to be low. So expectations of inflation are a key influence on national economic welfare. This collection pulls together a galaxy of world experts (including Roy Batchelor, Richard Curtin and Staffan Linden) on inflation expectations to debate different aspects of the issues involved. The main focus of the volume is on likely inflation developments. A number of factors have led practitioners and academic observers of monetary policy to place increasing emphasis recently on inflation expectations. One is the spread of inflation targeting, invented in New Zealand over 15 years ago, but now encompassing many important economies including Brazil, Canada, Israel and Great Britain. Even more significantly, the European Central Bank, the Bank of Japan and the United States Federal Bank are the leading members of another group of monetary institutions all considering or implementing moves in the same direction. A second is the large reduction in actual inflation that has been observed in most countries over the past decade or so. These considerations underscore the critical – and largely underrecognized - importance of inflation expectations. They emphasize the importance of the issues, and the great need for a volume that offers a clear, systematic treatment of them. This book, under the steely editorship of Peter Sinclair, should prove very important for policy makers and monetary economists alike.
Book Synopsis The New Keynesian Phillips Curve in an Inflation Targeting Country by : Giray Gozgor
Download or read book The New Keynesian Phillips Curve in an Inflation Targeting Country written by Giray Gozgor and published by . This book was released on 2013 with total page 12 pages. Available in PDF, EPUB and Kindle. Book excerpt: The possible short-run trade-off between the inflation (gap) and the output (gap) remains a critical policy issue for any emerging economy; particularly when an implicit or an explicit inflation targeting monetary policy is considered. The New Keynesian Phillips Curve (NKPC) has recently set up a framework on the trade-off between the inflation (gap) and the difference between the actual output and potential (efficient) output under the assumption of real wage rigidities. In this paper, we estimate the NKPC based on this framework for the Turkish economy over a period of implicit and explicit inflation targeting monetary policy. The results from Generalized Methods of Moments (GMM) estimation suggest that empirical findings are consistent with the theoretical background and the parameter restrictions are satisfied.
