New estimates of the hybrid US Phillips curve

Rao, B. Bhaskara and Cao, Cung (2010): New estimates of the hybrid US Phillips curve.

Abstract

This paper examines the validity of Rudd and Whelan’s (2006) critiques of Gali and Gertler’s (1999) hybrid Phillips curve (HYPC) by re-estimating the HYPC using full information maximum likelihood (FIML). We also estimate HYPC with the constraint that the weights for the sum of forward looking and backward looking expectations should be unity. Our results support Rudd and Whelan’s conclusion that the weight for forward looking expectations is insignificant.

• Item Type: MPRA Paper
• Language: English
• Keywords: New Keynesian Phillips Curve, Price Rigidities, FIML Estimation
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation

References

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Mankiw, Gregory and Ricardo Reis (2002), “Sticky Information Versus Sticky Prices: A Proposal to Replace The New Keynesian Philips Curve”, The Quarterly Journal of Economics.

Rao, B. B. and Srivastava, V. K. (1991), “A Disequilibrium Model of Rational Expectations for the U.K.”, Economic Journal, 101: 877-86.

Rudd, Jeremy, and Karl Whelan (2006), “Can Rational Expectations Sticky-Price Models Explain Inflation Dynamics?” American Economic Review 96 (March): 303–20.

Rudd, Jeremy, and Karl Whelan (2007), “Modelling Inflation Dynamics: A Critical Review of Recent Research.” Journal of Money, Credit, and Banking 39: 155–70.