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We present evidence from Peru that The New Keynesian Phillips Curve, Dynamic IS and Taylor Rule derived by GalI and Monacelli (2005) are unstable. The results from methodology of Bai… Click to show full abstract
We present evidence from Peru that The New Keynesian Phillips Curve, Dynamic IS and Taylor Rule derived by GalI and Monacelli (2005) are unstable. The results from methodology of Bai and Perron (2003) suggest that the change of the policy rule (January-2006 and May-2009) induces a break in the inaation process (January-2008) and in the market equation (October-2008); the latter due to the existence of nominal frictions and incomplete information in the Peruvian economy. Moreover, Qu and Perron (2007) estimation rea¢ rms that there are breaks in the entire reduced system (May-2008 and May-2010). In both cases, the channel of expectations is strengthened since 2008 and it is related to changes in the monetary policy during those years. JEL Classification-JEL: C32, C51, E31
Journal Title: Structural Change and Economic Dynamics
Year Published: 2018
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