Robustness of the estimates of the hybrid New Keynesian Phillips curve

Jordi Galí, Mark Gertler, J. David López-Salido

    Research output: Contribution to journalArticlepeer-review


    Galí and Gertler [1999. Inflation dynamics: a structural econometric approach. Journal of Monetary Eonomics 44(2), 195-222] developed a hybrid variant of the New Keynesian Phillips curve that relates inflation to real marginal cost, expected future inflation and lagged inflation. GMM estimates of the model suggest that forward-looking behavior is dominant: the coefficient on expected future inflation substantially exceeds the coefficient on lagged inflation. While the latter differs significantly from zero, it is quantitatively modest. Several authors have suggested that our results are the product of specification bias or suspect estimation methods. Here we show that these claims are incorrect, and that our results are robust to a variety of estimation procedures, including GMM estimation of the closed form, and nonlinear instrumental variables. Also, as we discuss, many others have obtained very similar results to ours using a systems approach, including FIML techniques. Hence, the conclusions of GG and others regarding the importance of forward-looking behavior remain robust.

    Original languageEnglish (US)
    Pages (from-to)1107-1118
    Number of pages12
    JournalJournal of Monetary Economics
    Issue number6
    StatePublished - Sep 2005

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics


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