Comparing alternative Phillips curve specifications : European results with survey-based expectations

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Title: Comparing alternative Phillips curve specifications : European results with survey-based expectations
ISBN: 952-462-237-8
Author: Paloviita, Maritta
Organization: Suomen Pankki
Series: Bank of Finland Research Discussion Papers
ISSN: 0785-3572
Series year: 2005
Series number: 22/2005
Year of publication: 2005
Publication date: 1.8.2005
Published in: Published in Applied Economics, Volume 40, Issue 17, September 2008, pp. 2259-2270
Pages: 26 s.
Keywords: Phillipsin käyrä; inflaatio; Eurooppa; odotukset;
JEL: E31; C52
Abstract: This paper examines inflation dynamics in Europe.Econometric specification tests with pooled European data are used to compare the empirical performance of the New Classical, New Keynesian and Hybrid specifications of the Phillips curve.Instead of imposing any specific form of expectations formation, direct measures, ie Consensus Economics survey data are used to proxy economic agents' inflation expectations.According to the results, the New Classical Phillips curve has satisfactory statistical properties.Moreover, the purely forward-looking New Keynesian Phillips curve is clearly outperformed by the New Classical and Hybrid Phillips curves.We interpret our results as indicating that the European inflation process is not purely forward-looking, and inflation cannot instantaneously adjust to changes in expectations.Consequently, even allowing for possible non-rationality in expectations, a lagged inflation term enters the New Keynesian Phillips curve for inflation dynamics in Europe.Key words: Phillips curve, expectations, Europe JEL classification numbers: E31, C52
Note: Ilmestynyt myös APPLIED ECONOMICS 2008 ; 40 ; 17.
Rights: https://helda.helsinki.fi/bof/copyright


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