The New Keynesian Phillips Curve in a Small, Open Economy: Specification, Structural Breaks, and Robustness

This paper empirically assesses the concern on whether the slope of the Phillips curve with respect to the output gap has decreased. A semi-structural estimation equation is obtained from a small open economy New-Keynesian Phillips curve (Galí and Monacelli, 2005) augmented with lags. For the Peruvian economy, such equation is estimated via the Generalized Method of Moments for the inflation targeting regime period (January 2002 - March 2019) and the post-Global Financial Crisis period (January 2008 - March 2019) periods. The results show that the slope parameter has remained stable for both estimation periods. Moreover, the expectation channel has gained more relevance for the post-crisis period, a result that is consistent with a lower persistence of inflation dynamics. Our results are also consistent with the presence of long run nominal homogeneity across estimation samples. (Audio: Department of Economic Publications)