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The New Keynesian Phillips Curve and Imperfect Exchange Rate Pass-Through

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  • Abbas Syed Kanwar

    (Department of Economics, International Business School Suzhou, Xi’an Jiaotong-Liverpool University, Suzhou, P. R. China)

Abstract

This paper estimates the New Keynesian Phillips Curve (NKPC) with imperfect exchange rate pass-through (alternatively, deviations from the law of one price). Our results describe the nature of inflation dynamics and business cycles under imperfect pass-through, with importance of both domestic price rigidity and import price rigidity for the US and other four open economies. The estimates of structural parameters of the import price and domestic price rigidities are not same and affect inflation-output gap elasticity and inflation-law of one price gap elasticity. The results yield implications for the stabilisation of real activity (also domestic inflation) compared to the deviations from the law of one price.

Suggested Citation

  • Abbas Syed Kanwar, 2023. "The New Keynesian Phillips Curve and Imperfect Exchange Rate Pass-Through," The B.E. Journal of Macroeconomics, De Gruyter, vol. 23(2), pages 885-915, June.
    • Handle: RePEc:bpj:bejmac:v:23:y:2023:i:2:p:885-915:n:13
    DOI: 10.1515/bejm-2022-0032
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    More about this item

    Keywords

    new Keynesian Phillips curve; imperfect pass-through; deviations from the law of one price; import price rigidity; inflation dynamics;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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