Keywords: Inflation, Phillips curve, New Keynesian economics
Abstract: The New Keynesian sticky-price model has become increasingly
popular for monetary-policy analysis. However, there have been
conflicting results on the empirical performance of the model.
In this paper, I attempt to reconcile these conflicting claims
by examining various specifications of the model within the
context of a single framework. I find that the New Keynesian
model does not fit the U.S. data well; in particular, the model
requires additional lags of inflation not implied by the model
under rational expectations. These additional lags have the
interpretation that some fraction of the population uses a
simple univariate rule for forecasting inflation.
Full paper (150 KB PDF)
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Last update: February 27, 2001