Author : Luca Bindelli
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (137 download)
Book Synopsis Is the Forward Looking Phillips Curve Unable to Generate Inflation Inertia? by : Luca Bindelli
Download or read book Is the Forward Looking Phillips Curve Unable to Generate Inflation Inertia? written by Luca Bindelli and published by . This book was released on 2005 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we test the present value relation implied by the forward-looking Phillips curve using data on 10 OECD countries. In an influential contribution, Galí and Gertler (1999) have suggested building theoretical inflation series conditional on a reduced-form VAR forecasting process for the marginal cost. We present empirical evidence supportive of a simple first-order autoregressive process in marginal cost instead. Conditional on this hypothesis and on the fact the Phillips curve holds true, theoretical inflation persistence will be shown to arise exclusively because of inertia in marginal cost. The resulting model's inflation dynamics can straightforwardly be tested without the need to estimate the structural parameters and VAR coefficients usually used to construct series on expected future marginal costs. We suggest that the forward-looking Phillips curve might generate too much inertia.