Interpreting the evidence for New Keynesian models of inflation dynamics

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe present a framework for interpretation of the empirical results of New Keynesian models of in ‡ation dynamics. Both the rational expectations solution of the structural New Keynesian Phillips curve, NKPC, and the reduced form VAR analysis of the multivariate time series properties give insight about the joint implications of the evidence in the NKPC literature. For example, we show that the unit-root form of non-stationary may be implied for in ‡ation even though the econometric model initally assumed stationarity. The uniqueness and form of a rational expectations solution may depend on whether dynamic (in)homogeneity is present, and on the size of the forward-coe¢ cient in the NKPC.

Estimating United States Phillips curves with expectations consistent with the statistical process of inflation

“…Consistent with Castle (2010), Russell (2011 and Nymoen et al (2012), we find that once we account for the shifts in the mean rate of inflation, there is no evidence that expected inflation as commonly measured in the New Keynesian literature plays a significant role in the dynamics of inflation. We also find that the data is inconsistent with the standard interpretations of both the Friedman-Phelps and hybrid models of inflation.…”

Does Output Gap, Labour's Share or Unemployment Rate Drive Inflation?

“…A number of recent studies have examined the importance of shifts in mean in estimating the NKPC (see Castle et al, 2010Castle et al, , 2013Russell 2011;Nymoen, Swensen and Tveter, 2012;Russell and Chowdhury, 2013). In these studies, inflation is considered a stationary series around a shifting mean.…”

On the Low Degree of Entropy Implied by the Solutions of Modern Macroeconomic Models

“…The solution for , given ( 21 ) and ( 19 ) is derived by following the same two steps as above. It is: where and are the two roots of and we assume (with only a little loss of generality) that and , see ([ 34 , 35 ] for details. The expressions for and are found in Appendix A .…”