Quantifying the Uncertainty About the Fit of a New Keynesian Pricing Model: Extended Version

CIRPEE Working Paper No. 03-44

38 Pages Posted: 15 Jan 2004

See all articles by André Kurmann

André Kurmann

Drexel University - LeBow College of Business

Date Written: November 2003

Abstract

Recent studies by Gali and Gertler (1999) and Sbordone (2002) conclude that a theoretical inflation series implied by the forward-looking New Keynesian pricing model of Calvo (1983) fits post-1960 U.S. inflation closely. Their theoretical inflation series is conditional on (i) a reduced-form forecasting process for real marginal cost; and (ii) the calibration of the structural pricing equation implied by the Calvo model. The present paper shows that both of these determinants are surrounded by considerable uncertainty. When quantifying the impact of this uncertainty on theoretical inflation, I find that we can no longer say whether the Calvo model explains observed inflation dynamics very well or very poorly.

Keywords: Inflation, New Keynesian pricing, real marginal cost

JEL Classification: E31, E32, E37

Suggested Citation

Kurmann, André, Quantifying the Uncertainty About the Fit of a New Keynesian Pricing Model: Extended Version (November 2003). CIRPEE Working Paper No. 03-44, Available at SSRN: https://ssrn.com/abstract=485643 or http://dx.doi.org/10.2139/ssrn.485643

André Kurmann (Contact Author)

Drexel University - LeBow College of Business ( email )

School of Economics
3220 Market Street
Philadelphia, PA 19104
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
46
Abstract Views
542
PlumX Metrics