The New Keynesian Phillips Curve: An empirical assessment

The recent works of Gali and Gertler (1999) and Gali, Gertler and Lopez-Salido (2001) provide evidence supporting the New Keynesian Phillips curve (NKPC). This model posits the dynamics of inflation as being forward-looking and related to real marginal costs. In this paper, we examine the empirical relevance of their results for the United States. Our approach addresses several important econometric issues with the standard approaches typically used for estimation and inference in NKPC models. Using the continously-updated GMM estimator proposed by Hansen, Heaton and Yaron (1996) and the 3-step GMM estimator developed by Bonnal and Renault (2003), the empirical evidence of the NKPC is rather mixed. Specifically, results are sensitive to the instruments sets, normalisation, estimators, the sample period and revisions of data