Trend Inflation, Indexation, and Inflation Persistence in the New Keynesian Phillips Curve

2008 ◽  
Vol 98 (5) ◽  
pp. 2101-2126 ◽  
Author(s):  
Timothy Cogley ◽  
Argia M Sbordone
Keyword(s):  
Monetary Policy ◽  
Ad Hoc ◽  
Phillips Curve ◽  
New Keynesian ◽  
Time Varying ◽  
New Keynesian Phillips Curve ◽  
Inflation Persistence ◽  
Long Run ◽  
Trend Inflation ◽  
Forward Looking

Purely forward-looking versions of the New Keynesian Phillips curve (NKPC) generate too little inflation persistence. Some authors add ad hoc backward-looking terms to address this shortcoming. We hypothesize that inflation persistence results mainly from variation in the long-run trend component of inflation, which we attribute to shifts in monetary policy. We derive a version of the NKPC that incorporates a time-varying inflation trend and examine whether it explains the dynamics of inflation. When drift in trend inflation is taken into account, a purely forward-looking version of the model fits the data well, and there is no need for backward-looking components. (JEL E12, E31, E52)

scholarly journals Movement of Inflation and New Keynesian Phillips Curve in ASEAN

Economies ◽  
2021 ◽  
Vol 9 (1) ◽  
pp. 34
Author(s):  
Adhitya Wardhono ◽  
M. Abd. Nasir ◽  
Ciplis Gema Qori’ah ◽  
Yulia Indrawati
Keyword(s):  
Inflation Rate ◽  
Phillips Curve ◽  
New Keynesian ◽  
Inflation Expectations ◽  
New Keynesian Phillips Curve ◽  
Method Of Moment ◽  
Inflation Model ◽  
Wage Inflation ◽  
Generalized Method Of Moment ◽  
Forward Looking

The development of the theory of dynamic inflation begins by linking wage inflation and unemployment. In further developments, factor of expectation is classified into inflation model. The study used inflation data is important for ASEAN, because ASEAN is one of the strengths of the international economy. This study analyzes the dynamics of inflation in the ASEAN using framework the New-Keynesian Phillips Curve (NKPC) model. The data used is the quarterly panel data from 5 ASEAN members in the period 2005.QI–2018.QIV. The study of this dynamic inflation applies quarter to quarter inflation data, meaning that the inflation rate is the percentage change in the general price of the current quarter compared to last quarter general price divided by the last quarter. The empirical results are estimated by using the Generalized Method of Moment (GMM), both of the system and first different indicates that the pattern formation of inflation expectations are backward-looking and forward-looking. In addition, the estimated NKPC models show the backward-looking behavior is more dominant than the forward looking. Changes in inflation are not entirely influenced by expectations of inflation in each country. Changes in inflation are also influenced by the output gap, changes in money supply, and exchange rate. Based on the findings of this study, it can be concluded that the NKPC models can explain the dynamics of inflation in each country in the ASEAN region.

The New Keynesian Phillips curve under trend inflation and strategic complementarity

2007 ◽  
Vol 29 (1) ◽  
pp. 37-59 ◽  
Author(s):  
Hasan Bakhshi ◽  
Hashmat Khan ◽  
Pablo Burriel-Llombart ◽  
Barbara Rudolf
Keyword(s):  
Phillips Curve ◽  
New Keynesian ◽  
New Keynesian Phillips Curve ◽  
Strategic Complementarity ◽  
Trend Inflation

Phillips curve and long-run inflation under commitment

2020 ◽  
Vol 47 (1) ◽  
pp. 21-35
Author(s):  
Dario Pontiggia
Keyword(s):  
Steady State ◽  
Design Methodology ◽  
Inflation Rate ◽  
Phillips Curve ◽  
Monetary Authority ◽  
New Keynesian ◽  
Content Type ◽  
Rule Of Thumb ◽  
Long Run ◽  
Forward Looking

PurposeThe purpose of this paper is to study the optimal long-run rate of inflation in the presence of a hybrid Phillips curve, which nests a purely backward-looking Phillips curve and the purely forward-looking New Keynesian Phillips curve (NKPC) as special limiting cases.Design/methodology/approachThis paper derives the long-run rate of inflation in a basic New Keynesian (NK) model, characterized by sticky prices and rule-of-thumb behavior by price setters. The monetary authority possesses commitment and its objective function stems from an approximation to the utility of the representative household.FindingsCommitment solution for the monetary authority leads to steady-state outcomes in which inflation, albeit small, is positive. Rising from zero under the purely forward-looking NKPC, the optimal long-run rate of inflation reaches its maximum under the purely backward-looking Phillips curve. In this case, inflation bias arises, while, under the hybrid Phillips curve, positive long-run inflation is associated with an output gain.Research limitations/implicationsThis paper serves as a clarification against the misperception that log-linearized models take as given the steady-state inflation rate rather than being capable of determining it. Analysis is sensitive to the basic NK setting, with the assumed rule-of-thumb behavior by price setters and price staggering.Originality/valueThe results are the first to quantify the optimal long-run rate of inflation in a fully microfounded model that nests different Phillips curves.

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