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Identification-Robust Minimum Distance Estimation of the New Keynesian Phillips Curve

Author

Listed:
  • Leandro M. Magnusson

    (Department of Economics, Tulane University)

  • Sophocles Mavroeidis

    (Department of Economics, Brown University)

Abstract
Limited-information identification-robust methods on the indexation and price rigidity parameters of the new Keynesian Phillips curve yield very wide confidence intervals. Full-information methods impose more restrictions on the reduced-form dynamics, and thus make more efficient use of the information in the data. We propose identification-robust minimum distance methods for exploiting these additional restrictions and show that they yield considerably smaller confidence intervals for the coefficients of the model compared to their limited-information GMM counterparts. In contrast to previous studies that used GMM, we find evidence of partial but not full indexation, and we obtain sharper inference on the degree of price stickiness.

Suggested Citation

  • Leandro M. Magnusson & Sophocles Mavroeidis, 2009. "Identification-Robust Minimum Distance Estimation of the New Keynesian Phillips Curve," Working Papers 0904, Tulane University, Department of Economics.
    • Handle: RePEc:tul:wpaper:0904
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    References listed on IDEAS

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    Cited by:

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    3. Tetsuya Kaji, 2019. "Theory of Weak Identification in Semiparametric Models," Papers 1908.10478, arXiv.org, revised Aug 2020.
    4. Sophocles Mavroeidis & Mikkel Plagborg-Møller & James H. Stock, 2014. "Empirical Evidence on Inflation Expectations in the New Keynesian Phillips Curve," Journal of Economic Literature, American Economic Association, vol. 52(1), pages 124-188, March.
    5. Antonio Diez de Los Rios, 2015. "A New Linear Estimator for Gaussian Dynamic Term Structure Models," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 33(2), pages 282-295, April.
    6. Kilponen, Juha & Vilmunen, Jouko & Vähämaa, Oskari, 2022. "Revisiting intertemporal elasticity of substitution in a sticky price model," Journal of Economic Dynamics and Control, Elsevier, vol. 144(C).
    7. Dufour, Jean-Marie & Khalaf, Lynda & Kichian, Maral, 2013. "Identification-robust analysis of DSGE and structural macroeconomic models," Journal of Monetary Economics, Elsevier, vol. 60(3), pages 340-350.
    8. Marcellino, Massimiliano & Kapetanios, George & Khalaf, Lynda, 2015. "Factor based identification-robust inference in IV regressions," CEPR Discussion Papers 10390, C.E.P.R. Discussion Papers.
    9. Hyeongwoo Kim & Ippei Fujiwara & Bruce E. Hansen & Masao Ogaki, 2015. "Purchasing Power Parity and the Taylor Rule," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 30(6), pages 874-903, September.
    10. Mariano Kulish & Adrian Pagan, 2016. "Issues in Estimating New Keynesian Phillips Curves in the Presence of Unknown Structural Change," Econometric Reviews, Taylor & Francis Journals, vol. 35(7), pages 1251-1270, August.
    11. Kilponen, Juha & Vilmunen, Jouko & Vähämaa, Oskari, 2021. "Revisiting intertemporal elasticity of substitution in a sticky price model," Research Discussion Papers 9/2021, Bank of Finland.
    12. Xu Cheng & Eric Renault & Paul Sangrey, 2024. "Identifying the Volatility Risk Price Through the Leverage Effect," PIER Working Paper Archive 24-013, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    13. Aragón, Edilean Kleber da Silva Bejarano & Galvão, Ana Beatriz, 2023. "Shock-based inference on the Phillips curve with the cost channel," Economic Modelling, Elsevier, vol. 126(C).
    14. Krogh, Tord S., 2015. "Macro frictions and theoretical identification of the New Keynesian Phillips curve," Journal of Macroeconomics, Elsevier, vol. 43(C), pages 191-204.

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    More about this item

    Keywords

    weak identification; minimum distance; GMM; Phillips curve;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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