This paper addresses the issue of testing the ‘hybrid’ New Keynesian Phillips Curve (NKPC) through Vector Autoregressive (VAR) systems and likelihood methods, giving special emphasis to the case where the variables are non-stationary. The idea is to use a VAR for both the inflation rate and the explanatory variable(s) to approximate the dynamics of the system and derive testable restrictions. A...

We investigate the importance of trend inflation and the real-activity gap in explaining inflation in G7 countries since 1960. Our analysis is based on a bivariate unobserved components model of inflation and unemployment in which inflation is decomposed into a stochastic trend and a transitory component. As in recent implementations of the New Keynesian Phillips Curve, it is the transitory com...

We analyze the inflation dynamics in Mexico during targeting period by a GMM estimate of Hybrid New Keynesian Phillips Curve its open and closed economy versions. update discuss previous results expand capacity this tool to inflationary incorporating exchange rate on labor costs. find: a) robust evidence adaptive rational expectations; b) improves fit; c) version has strengthened since Great Re...