Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/62781
Authors: 
Franke, Reiner
Jang, Tae-Seok
Sacht, Stephen
Year of Publication: 
2012
Series/Report no.: 
Economics Working Paper, Christian-Albrechts-Universität Kiel, Department of Economics 2012-08
Abstract: 
The paper considers an elementary New-Keynesian three equation model and compares its Bayesian estimation to the results from the method of moments (MM), which seeks to match finite set of the model-generated second moments of inflation, output and the interest rate to their empirical counterparts. It is found that in the Great Inflation (GI) period - though not in the Great Moderation (GM)he two estimations imply a significantly different covariance structure. Regarding the parameters, special emphasis is placed on the degree of backward-looking behaviour in the Phillips curve. While, in line with much of the literature, it plays a minor role in the Bayesian estimations, MM yields values of the price indexation parameter close to or even at its maximal value of unity. For both GI and GM, these results are worth noticing since in (strong or, respectively, weak) contrast to the Bayesian parameters, the covariance matching thus achieved is entirely satisfactory.
Subjects: 
Inflation persistence
price indexation
autocovariance profiles
goodness-of-fit
bootstrapping
JEL: 
C52
E32
E37
Document Type: 
Working Paper

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