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Firm-Specific Labor and Firm-Specific Capital: Implications for the Euro-Data New Phillips Curve

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  • Julien Matheron

    (Banque de France, Research Division)

Abstract

Standard GMM estimates of the New Phillips curve on euro-area data yield degrees of nominal rigidity that are not in accordance with recent microeconomic evidence. This paper studies whether similar conclusions are reached in a richer model where price setters face firm-specific capital and/or firm-specific labor. We find that combining these elements or considering firm-specific labor alone leads to statistically significant and economically reasonable estimates of the degree of nominal rigidity. In contrast, ignoring firm-specific labor yields estimates that are not supported by microeconomic evidence.

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Bibliographic Info

Article provided by International Journal of Central Banking in its journal International Journal of Central Banking.

Volume (Year): 2 (2006)
Issue (Month): 4 (December)
Pages:

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Handle: RePEc:ijc:ijcjou:y:2006:q:4:a:2

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Cited by:
  1. Gregory de Walque & Frank Smets & Raf Wouters, 2006. "Firm-specific production factors in a DSGE model with Taylor price setting," Working Paper Research 85, National Bank of Belgium.
  2. Timothy Cogley & Argia M. Sbordone, 2006. "Trend inflation and inflation persistence in the New Keynesian Phillips curve," Staff Reports 270, Federal Reserve Bank of New York.
  3. Hondroyiannis, George & Swamy, P.A.V.B. & Tavlas, George S., 2008. "Inflation dynamics in the euro area and in new EU members: Implications for monetary policy," Economic Modelling, Elsevier, vol. 25(6), pages 1116-1127, November.
  4. Joao Madeira, 2012. "Evaluating the Role of Firm-Specific Capital in New Keynesian models," Discussion Papers 1204, Exeter University, Department of Economics.
  5. Michael Woodford, 2005. "Firm-Specific Capital and the New-Keynesian Phillips Curve," NBER Working Papers 11149, National Bureau of Economic Research, Inc.

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