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.

Estimating the New Keynesian Phillips Curve for the UK: evidence from the inflation-indexed bonds market

2017 ◽  
Vol 18 (1) ◽  
Author(s):  
Hardik A. Marfatia
Keyword(s):  
Phillips Curve ◽  
New Keynesian ◽  
Inflation Expectations ◽  
New Keynesian Phillips Curve ◽  
Indexed Bonds ◽  
Unobserved Component ◽  
Expected Inflation ◽  
Component Approach ◽  
Unobserved Component Model ◽  
The Uk

Abstract This paper utilizes the information in the inflation-indexed bonds market to estimate the New Keynesian Phillips Curve for the UK using an unobserved component approach. The main advantage of this approach comes from using the Kalman filter to explicitly estimate the unobserved expected inflation from the observed break-even inflation rates – the yield difference between the inflation-indexed bonds and the nominal bonds. Our results show that the expected inflation estimated from the unobserved component model plays a significant role in explaining the inflation dynamics in the UK. The evidence also suggests that the estimated inflation expectations are better able to capture the evolution of actual inflation process as compared to the break-even inflation rate as a proxy for expected 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.

scholarly journals Empirical Evidence on Inflation Expectations in the New Keynesian Phillips Curve

2014 ◽  
Vol 52 (1) ◽  
pp. 124-188 ◽  
Author(s):  
Sophocles Mavroeidis ◽  
Mikkel Plagborg-Møller ◽  
James H. Stock
Keyword(s):  
Empirical Evidence ◽  
Phillips Curve ◽  
New Keynesian ◽  
Inflation Expectations ◽  
Clear Understanding ◽  
New Keynesian Phillips Curve ◽  
Limited Information ◽  
Weak Identification ◽  
Point Estimates

We review the main identification strategies and empirical evidence on the role of expectations in the New Keynesian Phillips curve, paying particular attention to the issue of weak identification. Our goal is to provide a clear understanding of the role of expectations that integrates across the different papers and specifications in the literature. We discuss the properties of the various limited-information econometric methods used in the literature and provide explanations of why they produce conflicting results. Using a common dataset and a flexible empirical approach, we find that researchers are faced with substantial specification uncertainty, as different combinations of various a priori reasonable specification choices give rise to a vast set of point estimates. Moreover, given a specification, estimation is subject to considerable sampling uncertainty due to weak identification. We highlight the assumptions that seem to matter most for identification and the configuration of point estimates. We conclude that the literature has reached a limit on how much can be learned about the New Keynesian Phillips curve from aggregate macroeconomic time series. New identification approaches and new datasets are needed to reach an empirical consensus. (JEL C51, D84, E12, E24, E31)

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 Can Rational Expectations Sticky-Price Models Explain Inflation Dynamics?

2006 ◽  
Vol 96 (1) ◽  
pp. 303-320 ◽  
Author(s):  
Jeremy Rudd ◽  
Karl Whelan
Keyword(s):  
Closed Form ◽  
Empirical Evidence ◽  
Hybrid Model ◽  
Rational Expectations ◽  
Phillips Curve ◽  
New Keynesian ◽  
Output Gap ◽  
New Keynesian Phillips Curve ◽  
Inflation Dynamics ◽  
Forward Looking

The canonical inflation specification in sticky-price rational expectations models (the new-Keynesian Phillips curve) is often criticized for failing to account for the dependence of inflation on its own lags. In response, many studies employ a “hybrid” specification in which inflation depends on its lagged and expected future values, together with a driving variable such as the output gap. We consider some simple tests of the hybrid model that are derived from its closed form. We find that the hybrid model describes inflation dynamics poorly, and find little empirical evidence for the type of rational, forward-looking behavior that the model implies.

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