Discussion Papers no. 652

Does it fit Norwegian data?

The new Keynesian Phillips curve

Publisert:

Åpne og les publikasjonen i PDF (31 sider)

We evaluate the empirical performance of the new Keynesian Phillips curve (NKPC) for a small open economy using cointegrated vector autoregressive models, likelihood based methods and general method of moments. Our results indicate that both baseline and hybrid versions of the NKPC as well as exact and inexact formulations of the rational expectation hypothesis are most likely at odds with Norwegian data. By way of contrast, we establish a well-specified dynamic backward-looking imperfect competition model (ICM), a model which encompasses the NKPC in-sample with a major monetary policy regime shift from exchange rate targeting to inflation targeting. We also demonstrate that the ICM model forecasts well both post-sample and during the recent financial crisis. Our findings suggest that taking account of forward-looking behaviour when modelling consumer price inflation is unnecessary to arrive at a well-specified model by econometric criteria.

Om publikasjonen

Tittel

The new Keynesian Phillips curve. Does it fit Norwegian data?

Ansvarlige

Pål Boug, Ådne Cappelen, Anders Rygh Swensen

Serie og -nummer

Discussion Papers no. 652

Utgiver

Statistics Norway

Emne

Discussion Papers

ISSN

1892-753X

Antall sider

31

Målform

Engelsk

Om Discussion Papers

Discussion papers comprise research papers intended for international journals and books. A preprint of a Discussion Paper may be longer and more elaborate than a standard journal article as it may include intermediate calculations, background material etc.

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