Identification‐Robust Minimum Distance Estimation of the New Keynesian Phillips Curve

Magnusson, Leandro M.; Mavroeidis, Sophocles

doi:10.1111/j.1538-4616.2009.00295.x

Cited by 23 publications

(27 citation statements)

References 37 publications

(64 reference statements)

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“…The point estimate of γ f is larger than 1 when either the labor share or the output gap are used as forcing variables, and the confidence sets are considerably tighter than for the corresponding GIV specification -compare with the top row of Figure 11. Hence, the VAR assumption appears to be informative in these specifications, consistent with the results in Magnusson and Mavroeidis (2010). However, we should stress that, due to computational limitations, we have only looked at very few VAR specifications, so this result should be viewed as tentative.…”

supporting

confidence: 61%

“…Dufour et al (2010a,b) carry out robust inference on certain extensions of the NKPC with real wage rigidities and labor market frictions. Magnusson and Mavroeidis (2010) develop a weak identification robust version of Sbordone's (2005) minimum distance test, finding somewhat smaller confidence regions than when using a robust GIV approach. Kleibergen and Mavroeidis (2013) Kapetanios and Marcellino (2010) and Kapetanios et al (2011) develop identification robust theory for GMM testing using instruments that have been estimated by principal components from a large set of candidate variables.…”

Section: Identification Issues and Robust Inferencementioning

confidence: 99%

“…Only recently has the econometric literature begun to analyze the consequences of weak identification for estimators other than GMM. Magnusson and Mavroeidis (2010) introduce a robust MD test and apply it to the NKPC. Robust VAR-ML analysis of the NKPC has not been attempted yet in the literature, but weak identification robust procedures for general maximum likelihood analysis are currently under development, cf.…”

mentioning

confidence: 99%

“…To gain intuition about the restrictiveness of the VAR assumption, it is useful to think of the analogy to iterated versus direct forecasts, a point made in Magnusson and Mavroeidis (2010). The VAR-GMM moment conditions (15) differ from the GIV moment conditions E [Y t−1 (π t − βπ t+1 − λx t )] = 0, in that GIV uses direct projections of future inflation on predetermined variables, while VAR-GMM uses iterated multi-step forecasts from a VAR.…”

mentioning

confidence: 99%

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Empirical Evidence on Inflation Expectations in the New Keynesian Phillips Curve

Mavroeidis

Plagborg‐Møller

Stock

2014

Journal of Economic Literature

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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.

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supporting

confidence: 61%

Section: Identification Issues and Robust Inferencementioning

confidence: 99%

mentioning

confidence: 99%

mentioning

confidence: 99%

See 2 more Smart Citations

Empirical Evidence on Inflation Expectations in the New Keynesian Phillips Curve

Mavroeidis

Plagborg‐Møller

Stock

2014

Journal of Economic Literature

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295

250

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“…The minimum distance estimator is also subject to the weak identification problem according to Magnusson and Mavroeidis (2009). Their 95% confidence intervals give a lower bound average duration of about 3.3 quarters to an upper bound of infinity.…”

Section: Comparisons With Estimates Based On the New Keynesian Phillimentioning

confidence: 99%

Purchasing Power Parity and the Taylor Rule

2013

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In the Kehoe and Midrigan (2007) model, the persistence parameter of the real exchange rate is closely related to the measure of price stickiness in the Calvo-pricing model. When we employ this view, Rogoff's (1996) 3 to 5 year consensus half-life implies that firms update their prices every 18 to 30 quarters on average. This is at odds with most estimates from U.S. aggregate data when single equation methods are applied to the New Keynesian Phillips Curve (NKPC), or when system methods are applied to Dynamic Stochastic General Equilibrium (DSGE) models that include the NKPC. It is well known, however, that there is a large degree of uncertainty around the consensus half-life of the real exchange rate. To obtain a more efficient estimator, this paper develops a system method that combines the Taylor rule and a standard exchange rate model to estimate half-lives. We use a median unbiased estimator for the system method with nonparametric bootstrap confidence intervals, and compare the results with those from the single equation method typically used in the literature. Applying the method to the real exchange rates of 18 developed countries against the U.S. dollar, we find that most of the half-life estimates from the single equation method fall in the range of 3 to 5 years with wide confidence intervals that extend to positive infinity. In contrast, the system method yields median-unbiased estimates that are typically shorter than one year with much sharper 95% confidence intervals, most of which range from 3 quarters to 5 years. These median unbiased estimates and the lower bound of the confidence intervals for the half-lives of real exchange rates are consistent with most estimates of price stickiness using aggregate U.S. data for the NKPC and DSGE models.

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Factor‐Based Identification‐Robust Interference in IV Regressions

Kapetanios

Khalaf

Marcellino

2015

J of Applied Econometrics

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Summary Robust methods for instrumental variable inference have received considerable attention recently. Their analysis has raised a variety of problematic issues such as size/power trade‐offs resulting from weak or many instruments. We show that information reduction methods provide a useful and practical solution to this and related problems. Formally, we propose factor‐based modifications to three popular weak‐instrument‐robust statistics, and illustrate their validity asymptotically and in finite samples. Results are derived using asymptotic settings that are commonly used in both the factor and weak‐instrument literature. For the Anderson–Rubin statistic, we also provide analytical finite‐sample results that do not require any underlying factor structure. An illustrative Monte Carlo study reveals the following. Factor‐based tests control size regardless of instruments and factor quality. All factor‐based tests are systematically more powerful than standard counterparts. With informative instruments and in contrast to standard tests: (i) power of factor‐based tests is not affected by k even when large; and (ii) weak factor structure does not cost power. An empirical study on a New Keynesian macroeconomic model suggests that our factor‐based methods can bridge a number of gaps between structural and statistical modeling. Copyright © 2015 John Wiley & Sons, Ltd.

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Identification‐Robust Minimum Distance Estimation of the New Keynesian Phillips Curve

Cited by 23 publications

References 37 publications

Empirical Evidence on Inflation Expectations in the New Keynesian Phillips Curve

Empirical Evidence on Inflation Expectations in the New Keynesian Phillips Curve

Purchasing Power Parity and the Taylor Rule

Factor‐Based Identification‐Robust Interference in IV Regressions

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