We review the main identification strategies and empirical evidence on the role of expectations in the new Keynesian Phillips curve, paying particular attention to the issue of weak identification. Our goal is to provide a clear understanding of the role of expectations that integrates across the different papers and specifications in the literature. We discuss the properties of the various limited-information econometric methods used in the literature and provide explanations of why they produce conflicting results. Using a common data set and a flexible empirical approach, we find that researchers are faced with substantial specification uncertainty, as different combinations of various a priori reasonable specification choices give rise to a vast set of point estimates. Moreover, given a specification, estimation is subject to considerable sampling uncertainty due to weak identification. We highlight the assumptions that seem to matter most for identification and the configuration of point estimates. We conclude that the literature has reached a limit on how much can be learned about the new Keynesian Phillips curve from aggregate macroeconomic time series. New identification approaches and new data sets are needed to reach an empirical consensus.

We discuss weak instrument robust statistics in GMM for testing hypotheses on the full parameter vector or on subsets of the parameters. We use these test procedures to re-examine the evidence on the new Keynesian Phillips curve model. We …nd that US postwar data are consistent with the view that in ‡ation dynamics are predominantly forward-looking, but we cannot rule out the presence of considerable backward-looking dynamics. Moreover, the Phillips curve has become ‡atter recently, and this is an important factor contributing to its weak identi…cation.

Identification issues in forward-looking models estimated by GMM, with an application to the Phillips curve Mavroeidis, S. Link to publication General rightsIt is not permitted to download or to forward/distribute the text or part of it without the consent of the author(s) and/or copyright holder(s), other than for strictly personal, individual use, unless the work is under an open content license (like Creative Commons). Disclaimer/Complaints regulationsIf you believe that digital publication of certain material infringes any of your rights or (privacy) interests, please let the Library know, stating your reasons. In case of a legitimate complaint, the Library will make the material inaccessible and/or remove it from the website. Please Ask the Library: https://uba.uva.nl/en/contact, or a letter to: Library of the University of Amsterdam, Secretariat, Singel 425, 1012 WP Amsterdam, The Netherlands. You will be contacted as soon as possible. Abstract Limited-information methods are commonly used to estimate forward-looking models with rational expectations, such as the "New Keynesian Phillips Curve" of Galí and Gertler (1999). In this paper, we address issues of identification that have been overlooked due to the incompleteness of the single-equation formulation. We show that problems of weak instruments may arise, depending on the properties of the 'exogenous' variables, and that they are empirically relevant. We also uncover a link between identification and dynamic mis-specification, and examine the (lack of) power of Hansen's (1982) J test to detect invalid over-identifying restrictions. With regards to the New Phillips curve, we find that problems of identification cannot be ruled out, and they deserve further attention.JEL classification: C22, E31

I revisit the question of indeterminacy in US monetary policy using limited-information identification-robust methods. I find that the conclusions of Clarida, Gal�, and Gernter (2000) that policy was inactive before 1979 are robust, but the evidence over the Volcker-Greenspan periods is inconclusive. I show that this is in fact consistent with policy being active over that period. Problems of identification also arise because policy reaction has been more gradual recently. At a methodological level, the paper demonstrates that identification issues should be taken seriously, and that identification-robust methods can be informative even when they produce wide confidence sets. (E31, E32, E52, E65,)