Ecole des HEC-DEEP
Thèse de doctorat en Sciences Economiques mention "économie politique"

Luca BINDELLI

Three Essays in New Keynesian Macroeconomics

Co-directeurs : Philippe Bacchetta et Jean Imbs
Imprimatur : mai 2005

Abstract

The thesis is divided into three chapters, and proceeds as follows:

In the first chapter, we test the present value relation implied by the forward-looking Phillips curve using data on 10 OECD countries. In an influential contribution, Galí and Gertler (1999) have suggested building theoretical inflation series conditional on a reduced-form VAR forecasting process for the marginal cost. We present empirical evidence supportive of a simple first-order autoregressive process in marginal cost instead. Conditional on this hypothesis and on the fact the Phillips curve holds true, theoretical inflation persistence will be shown to arise exclusively because of inertia in marginal cost. The resulting model's inflation dynamics can straightforwardly be tested without the need to estimate the structural parameters and VAR coefficients usually used to construct series on expected future marginal costs. We suggest that the forward-looking Phillips curve might generate too much inertia.

In the second chapter, we propose a new test of the forward-looking Phillips curve. Structural parameter estimates were obtained using an extremum estimation method which is applied in the frequency domain. Such an estimator has the advantage of enabling the econometrician to focus on subsets of frequencies for which the model is specifically designed. The forward-looking Phillips curve seemed quite successful in the case of Australia, Canada, France, the UK, and the US when concentrating on business cycle frequencies. However, once we controlled for a lagged inflation term, it appeared to be highly significant and this hybrid Phillips curve performed well for most countries. We found that the majority of the price setters were 'backward looking'. In addition, because our estimated probability of adjusting price remained fairly constant throughout the spectrum range, our evidence is compatible with the hypothesis that prices are adjusted according to a fixed, time invariant pricing rule.

In the third chapter, we are concerned with the role of monetary policy in the context of general equilibrium. Woodford (1999 and 2003) has raised the theoretical possibility that in a forward looking sticky price model, an independent channel of inertia might arise as a result of policy behaviour. We estimate a standard model, in which the monetary authority is assumed to commit to an optimal rule. We contribute to the existing literature by identifying the purely policy induced persistence present in the model. We also analyze the role of the structural parameters reflecting policy preferences and price flexibility in altering the policy induced, as well as the overall persistence properties of the model. Lagged terms in both modelled Phillips and IS curves are found to be either insignificant or very small. While commitment policy alone can explain a substantial part of output persistence, we find that inflation persistence is slightly reduced compared to the discretionary policy case.