The Small Open-Economy New Keynesian Phillips Curve: Empirical Evidence and Implied Inflation Dynamics

Alexander Mihailov (), Fabio Rumler and Johann Scharler

No em-dp2008-63, Economics Discussion Papers from Department of Economics, University of Reading

Abstract: This paper applies GMM estimation to assess empirically the small open-economy New Keynesian Phillips Curve derived in Galí and Monacelli (2005). We obtain a testable specification where fluctuations in the terms of trade enter explicitly, thus allowing a comparison of the relevance of domestic versus external determinants of CPI inflation dynamics. For most countries in our sample the expected relative change in the terms of trade emerges as a more relevant inflation driver than the contemporaneous domestic output gap. Overall, our results indicate some, albeit moderate, support for the tested relationship based on data from ten OECD countries typically classified as open economies.

Keywords: New Keynesian Phillips Curve; small open economies; terms of trade fluctuations; inflation dynamics; GMM estimation (search for similar items in EconPapers)
JEL-codes: C32 C52 E31 F41 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2008-11-15
New Economics Papers: this item is included in nep-cba, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Related works:
Journal Article: The Small Open-Economy New Keynesian Phillips Curve: Empirical Evidence and Implied Inflation Dynamics (2011)
Working Paper: The Small Open-Economy New Keynesian Phillips Curve: Empirical Evidence and Implied Inflation Dynamics (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:rdg:emxxdp:em-dp2008-63

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