Observed Inflation Forecasts and the New Keynesian Phillips Curve* |
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| Authors: | Chengsi Zhang Denise R Osborn Dong Heon Kim |
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| Institution: | 1. School of Finance, Renmin University of China, Beijing, China (e‐mail: zhangcs@ruc.edu.cn);2. Centre for Growth and Business Cycle Research, Economics, University ofManchester, Manchester, M13 9PL, UK (e‐mail: denise.osborn@manchester.ac.uk);3. Department of Economics, Korea University, Seoul, South Korea, and Centre forGrowth and Business Cycle Research, Economics, University of Manchester,Manchester, UK (e‐mail: dongkim@korea.ac.kr) |
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| Abstract: | This paper investigates the empirical success of the New Keynesian Phillips Curve (NKPC) in explaining US inflation when observed measures of inflation expectations are used in conjunction with the output gap. The paper contributes to the literature by addressing the important problem of serial correlation in the stylized NKPC and developing an extended model to account for this serial correlation. Contrary to recent results indicating no role for the output gap, we find it to be a statistically significant driving variable for inflation, with this finding robust to whether the inflation expectations series used relates to individual consumers, professional forecasters or the US Fed. |
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| Keywords: | E31 E58 |
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