Abstract

New Keynesian Phillips curves describe how past inflation, expected future inflation, and a measure of marginal cost or an output gap drive the current inflation rate. This paper demonstrates that typical, GMM estimation of these curves may feature parameters that are near-identified (in which case non-standard distribution theory applies) or unidentified. This problem may supercede the usual tradeoff between robustness and efficiency in comparing GMM estimators with full-information estimators, for we show that FIML may make identification easier. In a full-information environment, we illustrate the identification problem analytically. We then describe two pre-tests than can be used to study identification, and apply these to data for the United States, the United Kingdom, and Canada. In these countries, Phillips curves are central to discussions of monetary policy and inflation targetting. JEL classification: E31; C32

Citations