Technology, utilization and inflation: what drives the New Keynesian Phillips Curve?

Arbeitspapier

We argue that the New-Keynesian Phillips Curve literature has failed to deliver a convincing measure of “fundamental inflation”. We start from a careful modeling of optimal price setting allowing for non-unitary factor substitution, non-neutral technical change and timevarying factor utilization rates. This ensures the resulting real marginal cost measures match volatility reductions and level changes witnessed in many US time series. The cost measure comprises conventional counter-cyclical cost elements plus pro-cyclical (and co-varying) utilization rates. Although pro-cyclical elements dominate, real marginal costs are becoming less cyclical over time. Incorporating this richer driving variable produces more plausible price-stickiness estimates than otherwise and suggests a more balanced weight of backward and forward-looking inflation expectations than commonly found. Our results challenge existing views of inflation determinants and have important implications for modeling inflation in New-Keynesian models.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: ECB Working Paper ; No. 1369

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy: General (includes Measurement and Data) ; Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data)
• Thema: cyclicality ; inflation ; intensive labor ; Labor Share ; overtime premia ; production function ; real marginal costs ; utilization

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): McAdam, Peter ; Willman, Alpo
• Ereignis: Veröffentlichung
• (wer): European Central Bank (ECB)
• (wo): Frankfurt a. M.
• (wann): 2011

Weitere Informationen

• Handle: http://hdl.handle.net/10419/153803
• Letzte Aktualisierung: 10.03.2025, 11:43 MEZ