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The New Keynesian Phillips Curve in a Small Open Economy: Empirical Evidence from Australia

Version 2 2024-06-05, 11:57
Version 1 2016-05-09, 09:28
journal contribution
posted on 2024-06-05, 11:57 authored by SK Abbas, Prasad BhattacharyaPrasad Bhattacharya, Debdulal MallickDebdulal Mallick, Pasquale SgroPasquale Sgro
This study estimates the new Keynesian Phillips curve (NKPC) of Gali and Monacelli for a small open economy using Australian data. Our detailed investigation hinges on estimating the structural parameters in five different variants of the Gali–Monacelli NKPC, which relates the inflation process to terms of trade and the real exchange rate; the marginal cost and output gap as proxies for real economic activity and the hybrid version incorporating both forward- and backward-looking inflation expectations. The analysis and extensive robustness checks overwhelmingly establish that the Gali–Monacelli NKPC cannot explain the dynamics of inflation and is rejected by the Australian data.

History

Journal

Economic Record

Volume

92

Pagination

409-434

Location

London, Eng.

ISSN

0013-0249

eISSN

1475-4932

Language

English

Publication classification

C1 Refereed article in a scholarly journal, C Journal article

Copyright notice

2016, Economic Society of Australia

Issue

298

Publisher

WILEY