Deep habits in the New Keynesian Phillips Curve

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dc.contributor.authorLubik, T.
dc.contributor.authorTeo, W.
dc.date.issued2014
dc.description.abstractWe derive and estimate a New Keynesian Phillips Curve (NKPC) in a model with deep habits. Habits are deep in that they apply to individual consumption goods instead of aggregate consumption. This alters the NKPC in a fundamental manner since it introduces consumption growth and future demand terms into the NKPC equation. We construct the driving process in the deep habits NKPC by using the model’s optimality conditions to impute time series for unobservable variables. The resulting series is considerably more volatile than unit labor cost. Generalized methods of moments estimation shows an improved fit and a much lower degree of indexation compared to the standard NKPC.
dc.description.statementofresponsibilityHomas A. Lubik, Wing Leong Teo
dc.identifier.citationJournal of Money, Credit and Banking, 2014; 46(1):79-114
dc.identifier.doi10.1111/jmcb.12098
dc.identifier.issn0022-2879
dc.identifier.issn1538-4616
dc.identifier.urihttp://hdl.handle.net/2440/108841
dc.language.isoen
dc.publisherOhio State University Press
dc.rights© 2014 Federal Reserve Bank of Richmond
dc.source.urihttps://doi.org/10.1111/jmcb.12098
dc.subjectPhillips curve; GMM; marginal costs; deep habits
dc.titleDeep habits in the New Keynesian Phillips Curve
dc.typeJournal article
pubs.publication-statusPublished

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