Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/192634 
Year of Publication: 
2011
Series/Report no.: 
Discussion Papers No. 652
Publisher: 
Statistics Norway, Research Department, Oslo
Abstract: 
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.
Subjects: 
The new Keynesian Phillips curve
imperfect competition model
cointegrated vector autoregressive models (CVAR)
equilibrium correction models
likelihood based methods and general method of moments (GMM).
JEL: 
C51
C52
E31
F31
Document Type: 
Working Paper

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