A comment on 'on inflation expectations in the NKPC model'

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Abstract

Franses (Empir Econ, 2018. ) criticised the practice in the empirical literature of replacing expected inflation by the sum of realised future inflation and an error in estimating the parameters of the new Keynesian Phillips curve (NKPC). In particular, he argued that this assumption goes against the Wold decomposition theorem and makes the error term in the hybrid NKPC equation correlated with future inflation, invalidating the maximum likelihood (ML) estimator of Lanne and Luoto (J Econ Dyn Control 37:561-570, 2013). We argue that despite the correlation, the Wold theorem is not violated, and the ML estimator is consistent.

Original languageEnglish
JournalEmpirical Economics
Volume57
Issue number6
Pages (from-to)1865-1867
Number of pages3
ISSN0377-7332
DOIs
Publication statusPublished - Dec 2019
MoE publication typeA1 Journal article-refereed

Fields of Science

  • 511 Economics

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