Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/47285
Authors: 
Castle, Jennifer L.
Doornik, Jurgen A.
Hendry, David F.
Nymoen, Ragnar
Year of Publication: 
2010
Series/Report no.: 
Memorandum // Department of Economics, University of Oslo 2010,21
Abstract: 
The new-Keynesian Phillips curve (NKPC) includes expected future inflation to explain current inflation. Such models are estimated by replacing the expected value by the future outcome, using Instrumental Variables or Generalized Method of Momentsmethods. However, the underlying theory does not allow for various non-stationarities-although crises, breaks and regimes shifts are relatively common. We analytically investigate the consequences for NKPC estimation of breaks in data processes, then apply the new technique of impulse-indicator saturation to salient published studies to check their viability. The coefficient of the future value becomes insignificant after modelling breaks.
Subjects: 
New-Keynesian Phillips curve
Inflation expectations
Structural breaks
Impulse-indicator saturation
JEL: 
C51
C22
Document Type: 
Working Paper

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