Scandinavian Working Papers in Economics

Memorandum,
Oslo University, Department of Economics

No 18/2002: Testing the New Keynesian Phillips curve

Gunnar Bårdsen (), Eilev S. Jansen and Ragnar Nymoen ()
Additional contact information
Gunnar Bårdsen: Norges Bank, University of Oslo and Norwegian University of Science and Technology, Postal: Norwegian University of Science and Technology, Dragvoll, 7491 Trondheim
Eilev S. Jansen: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Ragnar Nymoen: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway

Abstract: The dynamic properties of the The New Keynesian Phillips curve (NPC) is analysed within the framework of a small system of linear di.erence equations.We evaluate the empirical results of existing studies which uses ‘Euroland’ and US data. The debate has been centered around the goodness-of-fit, but this is a weak criterion since the NPC-fit is typically well approximated by purely statistical models (e.g., a random walk). Several other parametric tests are then considered, and the importance of modelling a system that includes the forcing variables as well as the rate of inflation is emphasized. We also highlight the role of existing studies in providing new information relative to that which underlies the typical NPC. This encompassing approach is applied to open economy versions of the NPC for UK and Norway.

Keywords: New Keynesian Phillips curves; US inflation; Euro inflation; UK inflation; Norwegian inflation; Monetary policy; Dynamic stability conditions; Evaluation; Encompassing tests

JEL-codes: C22; C32; C52; E31; E52

41 pages, June 17, 2003

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