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Identification of new Keynesian Phillips curves from a global perspective

Dees, S. and Pesaran, M.H. and Smith, L.V. and Smith, Ron P. (2009) Identification of new Keynesian Phillips curves from a global perspective. Journal of Money, Credit and Banking 41 (7), pp. 1481-1502. ISSN 0022-2879.

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Official URL: http://dx.doi.org/10.1111/j.1538-4616.2009.00264.x

Abstract

This paper is concerned with the estimation of New Keynesian Phillips Curves (NKPC) and focuses on two issues: the weak instrument problem and the characterization of the steady states. It proposes some solutions from a global perspective. Using a global vector autoregressive (GVAR) model steady states are estimated as long-horizon expectations and valid instruments are constructed from the global variables as weighted averages. The proposed estimation strategy is illustrated using estimates of the NKPC for eight developed industrial countries. The GVAR generates global factors that are valid instruments and help alleviate the weak instrument problem. The steady states also reflect global influences and any long-run theoretical relationships that might prevail within and across countries in the global economy. The GVAR measure of the steady state performed better than the HP measure, and the use of foreign instruments substantially increased the precision of the estimates of the output coefficient.

Item Type: Article
Keyword(s) / Subject(s): steady states, long-horizon expectations, global VAR, identification, New Keynesian Phillips Curve, trend-cycle decomposition
School or Research Centre: Birkbeck Schools and Research Centres > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
Depositing User: Administrator
Date Deposited: 01 Dec 2010 09:44
Last Modified: 17 Apr 2013 12:33
URI: http://eprints.bbk.ac.uk/id/eprint/1987

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