Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/249892 
Year of Publication: 
2021
Series/Report no.: 
ECB Working Paper No. 2619
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
Endogeneity of the labour market slack in reduced-form Phillips Curves (PCs) is usually addressed either by including proxies for omitted supply shocks, or by using instrumental variables. Using the Kiviet (2020) Kinky Least Squares estimator, we find evidence that supply-shock proxies should not be omitted from PCs, and that many popular instrumental variables seem to be invalid. We estimate a standard backward-looking wage Phillips Curve by Kinky Least Squares and find that unless a large negative correlation between the slack variable and the error term is assumed, the coefficient of the slack variable is significantly negative.
Subjects: 
Phillips Curves
instrument-free inference
limited-information inference
JEL: 
C1
E3
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-4872-2
Document Type: 
Working Paper

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