Abstract
The New Keynesian Phillips Curve (NKPC) model of inflation dynamics based on forward-looking expectations is of great theoretical significance in monetary policy analysis. Empirical studies, however, often find that backward-looking inflation inertia dominates the dynamics of the short-run aggregate supply curve. This inconsistency is examined by investigating multiple structural changes in the NKPC for the U.S. between 1960 and 2005, employing both inflation expectations survey data and a rational expectations approximation. We find that forward-looking behavior plays a smaller role during the high and volatile inflation regime to 1981 than in the subsequent period of moderate inflation, providing empirical support for sticky price models over the last two decades. A break in the intercept of the NKPC is also identified around 2001 and this may be associated with U.S. monetary policy in that period.
| Original language | English |
|---|---|
| Pages (from-to) | 667-699 |
| Number of pages | 33 |
| Journal | Journal of Money, Credit and Banking |
| Volume | 40 |
| Issue number | 4 |
| DOIs | |
| Publication status | Published - 2008 Jun 1 |
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Keywords
- Inflation survey forecasts
- Monetary policy
- New Keynesian Phillips Curve
- Sticky prices
- Structural breaks
ASJC Scopus subject areas
- Finance
- Accounting
- Economics and Econometrics
Cite this
The new Keynesian Phillips curve : From sticky inflation to sticky prices. / Zhang, Chengsi; Osborn, Denise R.; Kim, Dong Heon.
In: Journal of Money, Credit and Banking, Vol. 40, No. 4, 01.06.2008, p. 667-699.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - The new Keynesian Phillips curve
T2 - From sticky inflation to sticky prices
AU - Zhang, Chengsi
AU - Osborn, Denise R.
AU - Kim, Dong Heon
PY - 2008/6/1
Y1 - 2008/6/1
N2 - The New Keynesian Phillips Curve (NKPC) model of inflation dynamics based on forward-looking expectations is of great theoretical significance in monetary policy analysis. Empirical studies, however, often find that backward-looking inflation inertia dominates the dynamics of the short-run aggregate supply curve. This inconsistency is examined by investigating multiple structural changes in the NKPC for the U.S. between 1960 and 2005, employing both inflation expectations survey data and a rational expectations approximation. We find that forward-looking behavior plays a smaller role during the high and volatile inflation regime to 1981 than in the subsequent period of moderate inflation, providing empirical support for sticky price models over the last two decades. A break in the intercept of the NKPC is also identified around 2001 and this may be associated with U.S. monetary policy in that period.
AB - The New Keynesian Phillips Curve (NKPC) model of inflation dynamics based on forward-looking expectations is of great theoretical significance in monetary policy analysis. Empirical studies, however, often find that backward-looking inflation inertia dominates the dynamics of the short-run aggregate supply curve. This inconsistency is examined by investigating multiple structural changes in the NKPC for the U.S. between 1960 and 2005, employing both inflation expectations survey data and a rational expectations approximation. We find that forward-looking behavior plays a smaller role during the high and volatile inflation regime to 1981 than in the subsequent period of moderate inflation, providing empirical support for sticky price models over the last two decades. A break in the intercept of the NKPC is also identified around 2001 and this may be associated with U.S. monetary policy in that period.
KW - Inflation survey forecasts
KW - Monetary policy
KW - New Keynesian Phillips Curve
KW - Sticky prices
KW - Structural breaks
UR - http://www.scopus.com/inward/record.url?scp=43749113567&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=43749113567&partnerID=8YFLogxK
U2 - 10.1111/j.1538-4616.2008.00131.x
DO - 10.1111/j.1538-4616.2008.00131.x
M3 - Article
AN - SCOPUS:43749113567
VL - 40
SP - 667
EP - 699
JO - Journal of Money, Credit and Banking
JF - Journal of Money, Credit and Banking
SN - 0022-2879
IS - 4
ER -