Empirical Economics

, Volume 46, Issue 2, pp 607–628 | Cite as

Estimating a high-frequency New-Keynesian Phillips curve

  • Steffen Ahrens
  • Stephen SachtEmail author


This paper estimates a high-frequency New-Keynesian Phillips curve via the generalized method of moments. Allowing for higher-than-usual frequencies strongly mitigates the problems of small-sample bias and structural breaks. Applying a daily frequency allows us to obtain estimates for the Calvo parameter of nominal rigidity over a very short period—for instance for the recent financial and economic crisis—which can then be easily transformed into their low-frequency equivalences. With Argentine data from the end of 2007 to the beginning of 2011 we estimate the daily Calvo parameter and find that on average prices remain fixed for approximately two to three months which is in line with recent microeconomic evidence.


Calvo staggering High-frequency New-Keynesian model  GMM 

JEL Classifications

C26 E31 



We would like to thank Reiner Franke, Matthias Hartmann, Henning Weber and Hans-Werner Wohltmann as well as two anonymous referees for helpful comments. Furthermore we would like to thank the participants of the 2011 Conference on Modeling High Frequency Data in Finance III at the Stevens Institute of Technology (New Jersey, USA) and the 2011 Annual Meeting of the Swiss Society of Economics and Statistics at the University of Lucerne (Switzerland) for the discussion of this paper.


  1. Aadland D (2001) High frequency real business cycles. J Monetary Econ 48:271–292CrossRefGoogle Scholar
  2. Abe N, Tonogi A (2010) Micro and macro price dynamics in daily data. J Monetary Econ 57:716–728CrossRefGoogle Scholar
  3. Alvarez LJ (2008) What do micro price data tell us on the validity of the New Keynesian Phillips curve? Econ: The Open-Access, Open-Assess E-J 2:1–38Google Scholar
  4. Anagnostopoulos A, Giannitsarou C (2010) Modeling time and macroeconomic dynamics. CEPR Discussion Paper No. 8050Google Scholar
  5. Bils M, Klenow PJ (2004) Some evidence on the importance of sticky prices. J Polit Econ 112:947–985CrossRefGoogle Scholar
  6. Breusch TS (1979) Testing for autocorrelation in dynamic linear models. Aust Econ Pap 17:334–355Google Scholar
  7. Calvo GA (1983) Staggered prices in a utility-maximizing framework. J Monetary Econ 12:383–398CrossRefGoogle Scholar
  8. Cavallo A (2010) Scraped data and sticky prices: frequency, hazards, and synchronization. MIT Sloan Working PaperGoogle Scholar
  9. Cavallo A (2012a) Scraped data and sticky prices. MIT Sloan Working PaperGoogle Scholar
  10. Cavallo A (2012b) Online and official price indexes: measuring Argentina’s inflation. MIT Sloan Working PaperGoogle Scholar
  11. Cavallo A, Rigobon R (2011) The distribution of the size of price changes. NBER Working Paper No. 16760Google Scholar
  12. Chari VV, Kehoe PJ, McGrattan ER (2002) Can sticky price models generate volatile and persistent real exchange rates? Rev Econ Stud 69:533–563CrossRefGoogle Scholar
  13. Christiano LJ (1985) A method for estimating the timing interval in a linear econometric model, with an application to Taylor’s model of staggered contracts. J Econ Dyn Control 9:363–404CrossRefGoogle Scholar
  14. Christinao LJ, Eichenbaum M, Evans CL (2005) Nominal rigidities and the dynamic effects of a shock to monetary policy. J Polit Econ 113:1–45CrossRefGoogle Scholar
  15. Clarida R, Galí J, Gertler M (2001) Optimal monetary policy in open versus closed economies: an integrated approach. AM Econ Rev 91:248–252CrossRefGoogle Scholar
  16. Clarida R, Galí J, Gertler M (2002) A simple framework for international monetary policy analysis. J Monetary Econ 49:879–904Google Scholar
  17. D’Amato L, Garegnani ML, Sotes Paladino JM (2007) Inflation persistence and changes in the monetary regime: the Argentine case. Working Paper 2007|23, Banco Central de la República ArgentinaGoogle Scholar
  18. D’Amato L, Garegnani ML (2009) Studying the short-run dynamics of inflation: estimating a hybrid New-Keynesian Phillips curve for Argentina (1993–2007). Working Paper 2009|40, Banco Central de la República ArgentinaGoogle Scholar
  19. Dhyne E, Alvarez LJ, Bihan HL, Veronese G, Dias D, Hoffmann J, Jonker N, Lunnemann P, Rumler F, Vilmunen J (2006) Price changes in the Euro Area and the United States: some facts from individual consumer price data. J Econ Perspect 20:171–192CrossRefGoogle Scholar
  20. Ellis C (2009) Do supermarket prices change from week to week? Bank of England Working Paper No. 378Google Scholar
  21. Escudé GJ (2007) ARGEM: a DSGE model with banks and monetary policy regimes with two feedback rules, calibrated for Argentina. Working Paper 2007|21, Banco Central de la República ArgentinaGoogle Scholar
  22. Escudé GJ (2009) ARGEMmy: an intermediate DSGE calibrated/estimated for Argentina: two policy rules are often better than one. Working Paper 2009|42, Banco Central de la República ArgentinaGoogle Scholar
  23. Fernández-Villaverde J, Rubio-Ramírez JF (2007) How structural are structural parameters? NBER Working Paper No. 13166Google Scholar
  24. Flaschel P, Franke R, Proaño CR (2008) On equilibrium determinacy in New Keynesian models with staggered wage and price setting. BE J Macroecon, Article 31Google Scholar
  25. Franke R, Sacht S (forthcoming) Some observations in the high-frequency versions of a standard New-Keynesian model. B Econ ResGoogle Scholar
  26. Fuhrer JC, Moore GR, Schuh SD (1995) Estimating the linear-quadratic inventory model: maximum likelihood versus generalized method of moments. J Monetary Econ 35:115–157CrossRefGoogle Scholar
  27. Galí J (2008) Monetary policy, inflation and the business cycle: an introduction to the New Keynesian framework. Princeton University Press, PrincetonGoogle Scholar
  28. Galí J, Gertler M (1999) Inflation dynamics: a structural econometric analysis. J Monetary Econ 44:195–222CrossRefGoogle Scholar
  29. Galí J, Gertler M, Lopez-Salido JD (2001) European inflation dynamics. Eur Econ Rev 45:1237–1270CrossRefGoogle Scholar
  30. Galí J, Monacelli T (2005) Monetary policy and exchange rate volatility in a small open economy. Rev Econ Stud 72:707–734CrossRefGoogle Scholar
  31. Godfrey LG (1978) Testing against general autoregressive and moving average error models when the regressors include lagged dependent variables. Econometrica 46:1293–1301CrossRefGoogle Scholar
  32. Gouvea S (2007) Price rigidity in Brazil: evidence from CPI micro data. Working Papers Series No. 143, Central Bank of BrazilGoogle Scholar
  33. Hansen LP (1982) Large sample properties of generalized method of moments estimators. Econometrica 50:1029–54CrossRefGoogle Scholar
  34. Holmberg K (2006) Derivation and estimation of a New Keynesian Phillips curve in a small open economy. Sveriges Riksbank Working Paper Series No. 197Google Scholar
  35. Ireland PN (2005) The monetary transmission mechanism. Working Papers No. 06–1, Federal Reserve Bank of BostonGoogle Scholar
  36. Khalaf L, Kichian M (2004) Estimating New Keynesian Phillips curves using exact methods. Bank of Canada Working Papers No. 04–11Google Scholar
  37. Kehoe PJ, Midrigan V (2007) Sales and the real effects of monetary policy. Working Papers No. 652, Federal Reserve Bank of MinneapolisGoogle Scholar
  38. Klenow PJ, Malin BA (2010) Microeconomic evidence on price-setting. NBER Working Paper No. 15826Google Scholar
  39. Leitemo K, Söderström U (2005) Simple monetary policy rules and exchange rate uncertainty. J Int Money Financ 24:481–507CrossRefGoogle Scholar
  40. Lindé J (2005) Estimating New-Keynesian Phillips curves: a full information maximum likelihood approach. J Monetary Econ 52:1135–1149CrossRefGoogle Scholar
  41. Lubik T, Schorfheide F (2007) Do central banks respond to exchange rate movements? A structural investigation. J Monetary Econ 54:1069–1087CrossRefGoogle Scholar
  42. Ma A (2002) GMM estimation of the New Phillips curve. Econ Lett 76:411–417CrossRefGoogle Scholar
  43. Mavroides S (2007) Testing the New Keynesian Phillips curve without assuming identification. Brown University Working PapersGoogle Scholar
  44. McCallum BT (1976) Rational expectations and the natural rate hypothesis: some consistent estimates. Econometrica 44:43–52CrossRefGoogle Scholar
  45. Medina JP, Rappoport D, Soto C (2007) Dinámica de ajuste de precios: evidencia de datos microeconómicos para Chile. J Econ Chilena 10:5–26Google Scholar
  46. Mihailov A, Rumler F, Scharler J (2011a) The small open-economy New Keynesian Phillips curve: empirical evidence and implied inflation dynamics. Open Econ Rev 22:317–337CrossRefGoogle Scholar
  47. Mihailov A, Rumler F, Scharler J (2011b) Inflation dynamics in the new EU member states: how relevant are external factors? Rev Int Econ 19:65–76CrossRefGoogle Scholar
  48. Monacelli T (2004) Into the Mussa puzzle: monetary policy regimes and the real exchange rate in a small open economy. J Int Econ 62:191–217CrossRefGoogle Scholar
  49. Morandé F, Tejada M (2008) Price stickiness in emerging economies: empirical evidence for four Latin-American countries. Working Papers wp286, University of Chile, Department of Economics, ChileGoogle Scholar
  50. Mortensen DT (1986) Job search and labor market analysis. In: Ashenfelter O, Layard R (ed.) Handb Labor Econ, 1st edn. Elsevier, Amsterdam, pp 849–919Google Scholar
  51. Nason MN, Smith GW (2008) The New Keynesian Phillips curve: lessons from single-equation econometric estimation. Econ Q 94:361–395Google Scholar
  52. Ramos-Francia M, Torres A (2008) Inflation dynamics in Mexico: a characterization using the New Phillips curve. N Am J Econ Financ 19:274–289CrossRefGoogle Scholar
  53. Rogerson R, Shimer R, Wright R (2005) Search-theoretic models of the labor market: a survey. J Econ Lit 43:959–988CrossRefGoogle Scholar
  54. Stock JH, Wright JH, Yogo M (2002) A survey of weak instruments and weak identification in generalized method of moments. J Bus Econ Stat 20:518–529CrossRefGoogle Scholar
  55. Svensson LEO, Woodford M (2003) Indicator variables for optimal policy. J Monetary Econ 50:691–720CrossRefGoogle Scholar
  56. Taylor JB (1999) Staggered price and wage setting in macroeconomics. In: Taylor JB, Woodford M (eds) Handbook of macroeconomics, 1st edn. Elsevier, Amsterdam, pp 1009–1050CrossRefGoogle Scholar
  57. Walsh C (2010) Monetary theory and policy. The MIT Press, CambridgeGoogle Scholar
  58. Woodford M (2003) Interest and prices: foundations of a theory of monetary policy. Princeton University Press, PrincetonGoogle Scholar
  59. World Bank (2009) World development indicators.Google Scholar
  60. World Bank (2010) Argentina trade brief. World trade indicators 2009/10: Country Trade Briefs. World Bank, Washington, DCGoogle Scholar
  61. Yazgan ME, Yilmazkuday H (2005) Inflation dynamics of Turkey: a structural estimation. Stud Nonlinear Dyn E 9:1–15Google Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2013

Authors and Affiliations

  1. 1.Kiel Institute for the World Economy KielGermany
  2. 2.Department of EconomicsChristian-Albrechts-University Kiel KielGermany

Personalised recommendations