Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/192482 
Year of Publication: 
2007
Series/Report no.: 
Discussion Papers No. 500
Publisher: 
Statistics Norway, Research Department, Oslo
Abstract: 
Recently, several authors have questioned the evidence claimed by Galí and Gertler (1999) and Galí, Gertler and López-Salido (2001) that a hybrid version of the New Keynesian Phillips Curve approximates European and US inflation dynamics quite well. We re-examine the evidence using likelihood-based methods. Although including lagged inflation enhances the empirical fit, the improvement is not large enough to yield a model that passes a likelihood ratio test. We also show that the likelihood surface is rather flat, especially in the European case, indicating that the model may be weakly identified as criticised by others using alternative methods.
Subjects: 
European and US inflation
the New Keynesian Phillips Curve
vector autoregressive models and likelihood ratio tests
JEL: 
C51
C52
E31
Document Type: 
Working Paper

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