The New Keynesian Phillips Curve and the Role of Expectations: Evidence from the Ifo World Economic Survey

41 Pages Posted: 5 Apr 2006

See all articles by Timo Wollmershaeuser

Timo Wollmershaeuser

Ifo Institute for Economic Research; CESifo (Center for Economic Studies and Ifo Institute)

Steffen Henzel

Ifo Institute for Economic Research

Date Written: March 2006

Abstract

We provide evidence on the fit of the hybrid New Keynesian Phillips curve for selected euro zone countries, the US and the UK. Instead of imposing rational expectations and estimating the Phillips curve by the Generalized Method of Moments, we follow Roberts (1997) and Adam and Padula (2003) and use direct measures of inflation expectations. The data source is the Ifo World Economic Survey, which quarterly polls economic experts about the expected future development of inflation. Our main findings are as follows: (i) In comparison with the rational expectations approach, backward-looking behaviour turns out to be more relevant for most countries in our sample. (ii) The use of survey data for inflation expectations yields a positive slope of the Phillips curve when the output gap is used as a measure for marginal cost.

Keywords: inflation expectations, survey data, euro zone, Phillips curve

JEL Classification: C52, E31

Suggested Citation

Wollmershaeuser, Timo and Henzel, Steffen, The New Keynesian Phillips Curve and the Role of Expectations: Evidence from the Ifo World Economic Survey (March 2006). CESifo Working Paper Series No. 1694, Available at SSRN: https://ssrn.com/abstract=895044 or http://dx.doi.org/10.2139/ssrn.895044

Timo Wollmershaeuser (Contact Author)

Ifo Institute for Economic Research ( email )

Poschingerstrasse 5
Munich, 81879
Germany
+49 89 9224 1406 (Phone)
+49 89 9224 1462 (Fax)

HOME PAGE: http://www.ifo.de/link/wollmershaeuser_t.htm

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Steffen Henzel

Ifo Institute for Economic Research ( email )

Poschingerstr. 5
Munich
Germany

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