How New Keynesian is the US Phillips Curve?
33 Pages Posted: 23 Jan 2014
Date Written: November 28, 2013
I provide a generalization of Calvo price setting, to include non-overlapping contracts as a special case and embed this in a small DSGE model. The resulting Generalized Phillips Curve (GPC) nests New-Keynesian and Neoclassical versions. I linearize the model around a potentially non-zero trend inflation rate, and estimate it on US data using Bayesian methods, allowing for Markov switching in the variances of structural shocks. I find that the Phillips curve is 100% New Keynesian. There is no evidence of either forward or backward indexation. I illustrate that trend inflation affects the estimation of the Phillips curve.
Keywords: Phillips curve, neoclassical, indexation, trend inflation, regime switch
JEL Classification: E13, E31
Suggested Citation: Suggested Citation