We use identification-robust methods to assess a New Keynesian Phillips Curve (NKPC) equation. We focus on the Gali - Gertler [1999. Inflation dynamics: a structural econometric analysis. Journal of Monetary Economics 44, 195-222] specification, for U.S. and Canadian data. Two variants of the model are studied: one based on a rational-expectations assumption, and a modification which uses survey-based data on inflation expectations. The two specifications exhibit sharp differences concerning: (i) identification difficulties, (ii) backward-looking behavior, and (iii) price adjustment frequency. Overall, the results provide some support to the hybrid NKPC for the U.S., whereas the model is not suited to Canada. Our analysis underscores the need for employing identification-robust inference methods.

Additional Metadata
Keywords Identification robust inference, Inflation dynamics, Macroeconomics, New Keynesian Phillips Curve, Optimal instruments, Weak instruments
Persistent URL dx.doi.org/10.1016/j.jedc.2005.08.013
Journal Journal of Economic Dynamics and Control
Citation
Dufour, J.-M. (Jean-Marie), Khalaf, L, & Kichian, M. (Maral). (2006). Inflation dynamics and the New Keynesian Phillips Curve: An identification robust econometric analysis. Journal of Economic Dynamics and Control, 30(9-10), 1707–1727. doi:10.1016/j.jedc.2005.08.013