New measures of the output gap based on the forward-looking new Keynesian Phillips curve

Basistha, Arabinda; Nelson, Charles R.

doi:10.1016/j.jmoneco.2005.07.021

Cited by 84 publications

(77 citation statements)

References 38 publications

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“…This implies that the unobserved output gap that is consistent with the NKPC follows a highly persistent process. This is similar to what Basistha and Nelson (2007) and Kim, Manopimoke, and Nelson (2014) find in the case of the US. These studies estimate NKPC for the US using an alternative measure of inflation expectations and treating the output gap as unobserved in the model.…”

Section: Model 2 Results: Output Gap Is Unobservedsupporting

confidence: 89%

“…The result of a flat slope of the Phillips curve is not entirely unexpected. In the estimation of the Phillips curve with the forward-looking specification, it is common to find statistically insignificant or incorrectly signed Phillips curve slope parameter ( Basistha and Nelson 2007;Kim, Manopimoke, and Nelson 2014). Though this is not the evidence we find here in the case of the UK.…”

Section: Model 2 Results: Output Gap Is Unobservedcontrasting

confidence: 79%

“…The correlation between the trend and inflation is statistically significant and negative. This is consistent with Basistha and Nelson (2007), who also find a negative correlation between the shocks to transitory (cyclical) component and shocks to permanent (trend) component in their model.…”

supporting

confidence: 90%

“…21 This paper uses two stage least square with instruments like spot and forward break-even inflation rates to address the measurement error present in the break-even inflation rates. 22 In the context of the US, Basistha and Nelson (2007) estimate NKPC and model the output gap as unobserved. They also find the significant role of the forward-looking component, but flatter Phillips curve in the range of 0.18-0.27.…”

Section: Discussionmentioning

confidence: 99%

“…Basistha and Nelson (2007) estimates a forward-looking NKPC for the US by treating the output gap as unobserved and using Michigan survey of inflation expectations. In another study, Kim, Manopimoke, and Nelson (2014) estimates unobserved trend-cycle model of the US inflation that is consistent with NKPC.…”

Section: Literature Reviewmentioning

confidence: 99%

See 4 more Smart Citations

Estimating the New Keynesian Phillips Curve for the UK: evidence from the inflation-indexed bonds market

Marfatia

2017

The B.E. Journal of Macroeconomics

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Abstract:This paper utilizes the information in the inflation-indexed bonds market to estimate the New Keynesian Phillips Curve for the UK using an unobserved component approach. The main advantage of this approach comes from using the Kalman filter to explicitly estimate the unobserved expected inflation from the observed break-even inflation rates -the yield difference between the inflation-indexed bonds and the nominal bonds. Our results show that the expected inflation estimated from the unobserved component model plays a significant role in explaining the inflation dynamics in the UK. The evidence also suggests that the estimated inflation expectations are better able to capture the evolution of actual inflation process as compared to the break-even inflation rate as a proxy for expected inflation.

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Section: Model 2 Results: Output Gap Is Unobservedsupporting

confidence: 89%

Section: Model 2 Results: Output Gap Is Unobservedcontrasting

confidence: 79%

supporting

confidence: 90%

Section: Discussionmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

See 3 more Smart Citations

Estimating the New Keynesian Phillips Curve for the UK: evidence from the inflation-indexed bonds market

Marfatia

2017

The B.E. Journal of Macroeconomics

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A multi‐country dynamic factor model with stochastic volatility for euro area business cycle analysis

Huber

Pfarrhofer

Piribauer

2020

Journal of Forecasting

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This paper develops a dynamic factor model that uses euro area (EA) country-specific information on output and inflation to estimate an area-wide measure of the output gap. Our model assumes that output and inflation can be decomposed into country-specific stochastic trends and a common cyclical component. Comovement in the trends is introduced by imposing a factor structure on the shocks to the latent states. We moreover introduce flexible stochastic volatility specifications to control for heteroscedasticity in the measurement errors and innovations to the latent states. Carefully specified shrinkage priors allow for pushing the model towards a homoscedastic specification, if supported by the data. Our measure of the output gap closely tracks other commonly adopted measures, with small differences in magnitudes and timing. To assess whether the model-based output gap helps in forecasting inflation, we perform an out-of-sample forecasting exercise. The findings indicate that our approach yields superior inflation forecasts, both in terms of point and density predictions. JEL: E32, C11, C32, C53

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Hours per capita and productivity: evidence from correlated unobserved components models

Basistha

2008

J of Applied Econometrics

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SUMMARYRecent studies debate the effect of a permanent productivity shock on hours per capita within a structural VAR context. This paper examines the issue using a correlated unobserved components (UC) framework. The estimates show that permanent shocks to productivity are negatively correlated with transitory shocks to hours. This result is robust for non-stationary or levels stationary specifications of hours. Model comparisons indicate that the data do not favor imposing VAR-type restrictions on the UC models.

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New measures of the output gap based on the forward-looking new Keynesian Phillips curve

Cited by 84 publications

References 38 publications

Estimating the New Keynesian Phillips Curve for the UK: evidence from the inflation-indexed bonds market

Estimating the New Keynesian Phillips Curve for the UK: evidence from the inflation-indexed bonds market

A multi‐country dynamic factor model with stochastic volatility for euro area business cycle analysis

Hours per capita and productivity: evidence from correlated unobserved components models

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