Is the Backward-Looking Component Important in a New Keynesian Phillips Curve?

摘要

New Keynesian Phillips curves (NKPC) have recently been modified to include additionalnlags of inflation in the specification in order to capture the considerable persistence in postwar U.S.ninflation. Furthermore, many researchers have agreed on the existence of structural changes in thenpersistence of inflation. Continuing with these literatures, we investigate the nature of structuralnchanges in the hybrid NKPC and reconsider the role of the backward-looking component in thenNKPC, taking into account the possibility of structural changes in the steady-state inflation rate.nOur empirical results show multiple structural breaks in the NKPC in 1974 and 1982. Accountingnfor these structural changes, the backward-looking component is no longer significant throughoutnthe whole sample period. In other words, the significant role of the backward-looking componentnin the earlier literature might be spuriously capturing the structural changes in the steady-stateninflation rate. Thus, U.S. inflation dynamics are well explained by a pure NKPC if we take intonaccount the possibility of structural changes in the steady-state inflation rate.