The New Keynesian Phillips Curve in a Small Open Economy: Empirical Evidence from Australia

26 Pages Posted: 8 Sep 2016

See all articles by Syed Kanwar Abbas

Syed Kanwar Abbas

Deakin University - Department of Economics

Prasad Sankar Bhattacharya

Deakin University

Debdulal Mallick

Deakin University - Faculty of Business and Law

Pasquale M. Sgro

Deakin University - Department of Economics

Date Written: September 2016

Abstract

This study estimates the new Keynesian Phillips curve (NKPC) of Gali and Monacelli for a small open economy using Australian data. Our detailed investigation hinges on estimating the structural parameters in five different variants of the Gali–Monacelli NKPC, which relates the inflation process to terms of trade and the real exchange rate; the marginal cost and output gap as proxies for real economic activity and the hybrid version incorporating both forward‐ and backward‐looking inflation expectations. The analysis and extensive robustness checks overwhelmingly establish that the Gali–Monacelli NKPC cannot explain the dynamics of inflation and is rejected by the Australian data.

Suggested Citation

Abbas, Syed Kanwar and Bhattacharya, Prasad Sankar and Mallick, Debdulal and Sgro, Pasquale Michael, The New Keynesian Phillips Curve in a Small Open Economy: Empirical Evidence from Australia (September 2016). Economic Record, Vol. 92, Issue 298, pp. 409-434, 2016, Available at SSRN: https://ssrn.com/abstract=2836241 or http://dx.doi.org/10.1111/1475-4932.12262

Syed Kanwar Abbas (Contact Author)

Deakin University - Department of Economics

Australia

Prasad Sankar Bhattacharya

Deakin University ( email )

75 Pigdons Road
Victoria, Victoria 3216
Australia

Debdulal Mallick

Deakin University - Faculty of Business and Law ( email )

Burwood, Victoria 3215
Australia

Pasquale Michael Sgro

Deakin University - Department of Economics ( email )

70 Elgar rd
Burwood
Victoria 3125
03 9244 5245 (Fax)

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