A comment on 'on inflation expectations in the NKPC model'

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http://hdl.handle.net/10138/306928

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Lanne , M & Luoto , J P 2019 , ' A comment on 'on inflation expectations in the NKPC model' ' , Empirical Economics , vol. 57 , no. 6 , pp. 1865-1867 . https://doi.org/10.1007/s00181-018-1582-9

Title: A comment on 'on inflation expectations in the NKPC model'
Author: Lanne, Markku; Luoto, Jani Pentti
Contributor organization: Faculty of Social Sciences
Economics
Helsinki Center of Economic Research (HECER) 2010-2012
Financial and Macroeconometrics
Academic Disciplines of the Faculty of Social Sciences
Helsinki Centre of Economic Research (HECER), alayksikkö 2013-2021
Date: 2019-12
Language: eng
Number of pages: 3
Belongs to series: Empirical Economics
ISSN: 0377-7332
DOI: https://doi.org/10.1007/s00181-018-1582-9
URI: http://hdl.handle.net/10138/306928
Abstract: Franses (Empir Econ, 2018. ) criticised the practice in the empirical literature of replacing expected inflation by the sum of realised future inflation and an error in estimating the parameters of the new Keynesian Phillips curve (NKPC). In particular, he argued that this assumption goes against the Wold decomposition theorem and makes the error term in the hybrid NKPC equation correlated with future inflation, invalidating the maximum likelihood (ML) estimator of Lanne and Luoto (J Econ Dyn Control 37:561-570, 2013). We argue that despite the correlation, the Wold theorem is not violated, and the ML estimator is consistent.
Subject: 511 Economics
Peer reviewed: Yes
Rights: cc_by
Usage restriction: openAccess
Self-archived version: publishedVersion


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