Priors and the Slope of the Phillips Curve
Abstract: The slope of the Phillips curve in New Keynesian models is difficult to estimate using aggregate data. We show that in a Bayesian estimation, the priors placed on the parameters governing nominal rigidities significantly influence posterior estimates and thus inferences about the importance of nominal rigidities. Conversely, we show that priors play a negligible role in a New Keynesian model estimated using state-level data. An estimation with state-level data exploits a relatively large panel dataset and removes the influence of endogenous monetary policy.
File(s): File format is application/pdf https://www.minneapolisfed.org/research/wp/wp778.pdf
Provider: Federal Reserve Bank of Minneapolis
Part of Series: Working Papers
Publication Date: 2021-03-17