Estimating the New Keynesian Phillips Curve Using Expected Inflation from Financial Market Instruments

28 Pages Posted: 20 Mar 2015 Last revised: 2 Nov 2020

See all articles by James Ross McCown

James Ross McCown

University of Oklahoma - Division of Finance; Toltec Group

Ron Shaw

Oklahoma City University

Larry J. Prather

Southeastern Oklahoma State University

Date Written: October 31, 2020

Abstract

We estimate the New Keynesian Phillips Curve for the USA from 1997 to 2019 using expected inflation from financial instruments. We use a spliced series comprised of the TIPS spread and inflation swaps. Empirical tests find higher coefficients on backward-looking inflation than forward-looking, except for the 2009 – 2015 period of zero lower bound Fed Funds rate target. This supports the hybrid version of the NKPC. We find zero coefficients on marginal costs proxies for the entire period except during the post-zero lower bound period of 2016 – 2019. Results give very little support for the role of real economic variables in the determination of inflation.

Keywords: New Keynesian Phillips Curve, NKPC, expected inflation, inflation

JEL Classification: C22, E31, E37, E44

Suggested Citation

McCown, James Ross and Shaw, Ron and Prather, Larry J., Estimating the New Keynesian Phillips Curve Using Expected Inflation from Financial Market Instruments (October 31, 2020). Available at SSRN: https://ssrn.com/abstract=2580316 or http://dx.doi.org/10.2139/ssrn.2580316

James Ross McCown (Contact Author)

University of Oklahoma - Division of Finance ( email )

Norman, OK 73019
United States

Toltec Group ( email )

Oklahoma City, OK
United States

Ron Shaw

Oklahoma City University ( email )

2501 North Blackwelder
Oklahoma City, OK 73106
United States

Larry J. Prather

Southeastern Oklahoma State University ( email )

1405 N 4th Ave
Durant, OK 74701
United States

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