Observed inflation forecasts and the new Keynesian macro model

This paper compares the GMM and measured expectations in estimating the conventional New Keynesian macro model for the Euro area and the United States. The use of measured expectations strongly reduces the importance of lagged output and inflation terms. ► This paper compares ways of estimating a small New Keynesian macro model. ► The paper shows that survey-data based expectations perform very well. ► Results for the US and EU differ in an interesting way. ► Survey-data based expectations enhance the role of foreword-looking terms. ► System estimation results for the whole model are reasonable, at least.