Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)

Abstract: The New-Keynesian Phillips curve has recently become an important ingredient in monetary policy models. However, using limited information methods, the empirical support for the New-Keynesian Phillips curve appear to be mixed. This paper argues, by means of Monte Carlo simulations with a simple New-Keynesian sticky price model, that single equations methods, e.g. GMM, are likely to produce imprecise and biased estimates. Then, it is argued that estimating the model with full information maximum likelihood (FIML) is a useful way of obtaining better estimates. Finally, a version of the model used in the Monte Carlo simulations is estimated on U.S. data with FIML and although the pure forward-looking New-Keynesian Phillips curve is rejected, a version with both forward- and backward-looking components provides a reasonable approximation of U.S. inflation dynamics.

Keywords: Monetary policy rule; New-Keynesian Phillips curve; Rational expectations IS-curve; Backward-looking Phillips curve; Measurement errors; Full Information Maximum Likelihood estimation

JEL-codes: C22; C52; E52

30 pages, First version: December 1, 2001. Revised: March 1, 2005. Earlier revisions: April 30, 2001, December 1, 2002.

Full text files

WP_129Revised.pdf  

Download statistics

Published as

Jesper Lindé, (2005), 'Estimating New-Keynesian Phillips curves: A Full Information Maximum Likelihood Approach', Journal of Monetary Economics, vol 52, no 6, pages 1135-1149

• Sveriges Riksbank (Central Bank of Sweden)
• Ordering Working Papers
• Home page for this series

Questions (including download problems) about the papers in this series should be directed to Lena Löfgren ()
Report other problems with accessing this service to Sune Karlsson ().

RePEc:hhs:rbnkwp:0129This page generated on 2024-09-13 22:16:57.