Please use this identifier to cite or link to this item: http://hdl.handle.net/2440/108841
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Type: Journal article
Title: Deep habits in the New Keynesian Phillips Curve
Author: Lubik, T.
Teo, W.
Citation: Journal of Money, Credit and Banking, 2014; 46(1):79-114
Publisher: Ohio State University Press
Issue Date: 2014
ISSN: 0022-2879
1538-4616
Statement of
Responsibility: 
Homas A. Lubik, Wing Leong Teo
Abstract: We 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.
Keywords: Phillips curve; GMM; marginal costs; deep habits
Rights: © 2014 Federal Reserve Bank of Richmond
RMID: 0030068545
DOI: 10.1111/jmcb.12098
Appears in Collections:Economics publications

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