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How Well Does the New Keynesian Sticky-Price Model Fit the Data?

  • John M. Roberts
Published/Copyright: September 20, 2005
Topics in Macroeconomics
From the journal Topics in Macroeconomics Volume 5 Issue 1

Abstract

A number of hypotheses have been proposed to account for the role of lagged inflation in the New Keynesian price-adjustment model: (1) In the aftermath of abrupt structural change, rational learning may appear adaptive. (2) The model may have a serially correlated error term. (3) Estimating the model conditional on labor costs may remove or reduce the need for lagged inflation. I address the empirical support for these hypotheses and find that none eliminates the need for lagged inflation. In particular, lagged inflation enters with a coefficient in the range of 0.4 to 0.5, regardless of whether labor's share or detrended output is the measure of real marginal cost, or whether a serially correlated error term is allowed. Also, eliminating the period 1980-83 from the sample does not reduce the coefficient on lagged inflation.

Keywords: Inflation; Phillips curve; New Keynesian economics
Published Online: 2005-09-20

©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston

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https://doi.org/10.2202/1534-6005.1206
Keywords for this article
Inflation; Phillips curve; New Keynesian economics

Articles in the same Issue

  1. Advances Article
  2. Comparing Wealth Effects: The Stock Market versus the Housing Market
  3. Optimal Time-Consistent Taxation with International Mobility Of Capital
  4. The Great Inflation of the Seventies: What Really Happened?
  5. Contributions Article
  6. The Effects of Industrialization on Education and Youth Labor in Indonesia
  7. A Closed Form Ramsey Saddle Path
  8. Indeterminacy, Stabilization Policy and Returns to Scale: A Re-Investigation
  9. Hiccups for HIPCs? Implications of Debt Relief for Fiscal Sustainability and Monetary Policy
  10. The Effects of Reducing Firing Costs in Spain: A Lost Opportunity?
  11. The Buffer-Stock Consumption Model with Endogenous Income Shifts
  12. Capital-Skill Complementarity and Rigid Relative Wages: Inference from the Business Cycle
  13. Indeterminacy and the Stability Puzzle in Non-Convex Economies
  14. The Underestimated Virtues of the Two-sector AK Model
  15. How Well Does the New Keynesian Sticky-Price Model Fit the Data?
  16. Exchange Rates and Fiscal Adjustments: Evidence from the OECD and Implications for the EMU
  17. Changing Technology Trends, Transition Dynamics, and Growth Accounting
  18. The 3-Equation New Keynesian Model --- A Graphical Exposition
  19. Topics Article
  20. Transparency and Reputation: The Publication of Central Bank Forecasts
  21. Technology Adoption in Follower Countries: With or Without Local R&D Activities?
  22. Non-Scale Models of R&D-based Growth: The Market Solution
  23. Parameter Instability, Model Uncertainty and the Choice of Monetary Policy
  24. Job Insecurity, Reallocation and Technological Innovation in a Self-Fulfilling Prophecy
  25. The Scope of Monetary Policy Actions Authorized Under the Federal Reserve Act
  26. Roads versus Schooling: Growth Effects of Government Choices
  27. Matching Up the Data on Education with Economic Growth Models
  28. An Active Public Investment Rule and the Downsizing Experience in the US: 1960-2000
  29. Exchange Rate Regimes and Financial Dollarization: Does Flexibility Reduce Currency Mismatches in Bank Intermediation?
  30. U.S. Regional Income and Technology: A Unit-Root and Cointegration Study
  31. Firm Entry with an Imperfect Labor Market
  32. Fiscal Policy and the Price Level
  33. Income Taxation, Productive Government Expenditure and Stochastic Growth: On Conditions for an Optimal Policy and the Role of the Risk Premium
  34. Income and Wealth Distributions Along the Business Cycle: Implications from the Neoclassical Growth Model
  35. Ramsey-Friedman Optimality with Banking Time
  36. Optimal Fiscal Policy with Rationing in the Labor Market
  37. The Monetary Policy Committee's Reaction Function: An Exercise in Estimation
  38. Policy Effects in the Post Boom U.S. Economy
  39. Human Capital and Growth: An Alternative Accounting
  40. Growing Old Together: Firm Survival and Employee Turnover
  41. Vertical Diversity, Communication Gap and Equilibrium Growth
  42. Should Developing Countries Strengthen their Intellectual Property Rights?
  43. Capital Accumulation in Private Information Economies
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