Interpreting the evidence for New Keynesian models of inflation dynamics
(), Anders Rygh Swensen and Eivind Tveter
Abstract: We present a framework for interpretation of the empirical
results of New Keynesian models of inflation dynamics. Both the rational
expectations solution of the structural New Keynesian Phillips curve, NKPC,
and the reduced form VAR analysis of the multivariate time series
properties give insight about the joint implications of the evidence in the
NKPC literature. For example, we show that the unit-root form of
non-stationary may be implied for inflation even though the econometric
model initally assumed stationarity. We point out and suggest a correction
to an error in the literature regarding the existence or not of a rational
expectations solution in the case of homogeneity and forward-dominance.
Keywords: New Keynesian Phillips Curve; forward-looking price setting; rational expectations; VAR model; (follow links to similar papers)
JEL-Codes: B41; C22; E31; E52; (follow links to similar papers)
18 pages, July 19, 2011
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