Is the New Keynesian Phillips curve flat?

Arbeitspapier

Macroeconomic data suggest that the New Keynesian Phillips curve is quite flat - despite microeconomic evidence implying frequent price adjustments. While real rigidities may help to account for the conflicting evidence, we propose an alternative explanation: if price markup/cost-push shocks are persistent and negatively correlated with the labor share, the latter being a widely used measure for marginal costs, the estimated pass-through of measured marginal costs into inflation is limited, even if prices are fairly flexible. Using a standard New Keynesian model, we show that the GMM approach to the New Keynesian Phillips curve leads to inconsistent and upward biased estimates if cost-push shocks indeed are persistent. Monte Carlo experiments suggest that the bias is quite sizeable: we find average price durations estimated as high as 12 quarters, when the true value is about 2 quarters. Moreover, alternative estimators appear to be biased as well, while standard diagnostic tests fail to signal a misspecification of the model.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: ECB Working Paper ; No. 809

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) ; Statistical Simulation Methods: General
• Thema: Cost-push shocks ; GMM estimation ; New Keynesian Phillips curve ; Price Rigidities ; New-Keynesian Phillips Curve ; Preisrigidität ; Inflationstheorie ; Theorie

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Kuester, Keith ; Müller, Gernot J. ; Stölting, Sarah
• Ereignis: Veröffentlichung
• (wer): European Central Bank (ECB)
• (wo): Frankfurt a. M.
• (wann): 2007

Weitere Informationen

• Handle: http://hdl.handle.net/10419/153243
• Letzte Aktualisierung: 20.09.2024, 08:21 MESZ