Robustness of the Estimates of the Hybrid New Keynesian Phillips Curve / Jordi Gali, Mark Gertler, David Lopez-Salido.

Format:

Book

Author/Creator:

Gali, Jordi.

Contributor:

National Bureau of Economic Research.

Gertler, Mark.

Lopez-Salido, David.

Series:

Working Paper Series (National Bureau of Economic Research) no. w11788.

NBER working paper series no. w11788

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2005.

Summary:

Galí and Gertler (1999) developed a hybrid variant of the New Keynesian Phillips curve that relates inflation to real marginal cost, expected future inflation and lagged inflation. GMM estimates of the model suggest that forward looking behavior is dominant: The coefficient on expected future inflation substantially exceeds the coefficient on lagged inflation. While the latter differs significantly from zero, it is quantitatively modest. Several authors have suggested that our results are the product of specification bias or suspect estimation methods. Here we show that these claims are incorrect, and that our results are robust to a variety of estimation procedures, including GMM estimation of the closed form, and nonlinear instrumental variables. Also, as we discuss, many others have obtained very similar results to ours using a systems approach, including FIML techniques. Hence, the conclusions of GG and others regarding the importance of forward looking behavior remain robust.

Notes:

Print version record

November 2005.