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New Keynesian Phillips curves - a reassessment using euro-area data

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Abstract

Using euro-area data, we re-examine the empirical success of New Keynesian Phillips Curves (NKPCs). The nature of our re-evaluation relies on the actual empirical underpinnings of such estimates - we find existing estimates un-robust and – given that key parameters are generally calibrated rather than estimated – potentially at odds with the data. We re-estimate with a well specified optimizing supply-side (which attempts to treat non-stationarity in factor income shares and mark-ups) and this allows us to derive estimates of technology parameters and marginal costs. Our resulting estimates of the euro-area NKPCs are robust, provide reasonable estimates for fixed-price durations and discount rates and embody plausible dynamic properties. Our method for identifying and estimating New Keynesian Phillips curves has general applicability to a wide set of countries and might also be used in identifying sectoral NKPCs. JEL Classification: E31.

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 265.

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Length: 65 pages
Date of creation: Sep 2003
Date of revision:
Handle: RePEc:ecb:ecbwps:20030265

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Keywords: Phillips curves; inflation dynamics; supply-side; Euro area.;

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References

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Citations

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Cited by:
  1. Maritta Paloviita, 2008. "Comparing alternative Phillips curve specifications: European results with survey-based expectations," Applied Economics, Taylor and Francis Journals, vol. 40(17), pages 2259-2270.
  2. Fabio Rumler, 2006. "The New Keynesian Phillips Curve for Austria – An Extension for the Open Economy," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 55–69, January 2.
  3. Philip Vermeulen, 2007. "Can adjustment costs explain the variability and counter-cyclicality of the labour share at the firm and aggregate level?," Working Paper Series 772, European Central Bank.
  4. Filippo Altissimo & Michael Ehrmann & Frank Smets, 2006. "Inflation persistence and price-setting behaviour in the euro area : a summary of the Inflation Persistence Network evidence," Working Paper Research 95, National Bank of Belgium.
  5. Rumler, Fabio & Valderrama, Maria Teresa, 2010. "Comparing the New Keynesian Phillips Curve with time series models to forecast inflation," The North American Journal of Economics and Finance, Elsevier, vol. 21(2), pages 126-144, August.
  6. Nicoletta Batini, 2002. "Euro area inflation persistence," Working Paper Series 201, European Central Bank.
  7. Ieva Rubene & Paolo Guarda, 2004. "The new Keynesian Phillips curve: empirical results for Luxembourg," BCL working papers 11, Central Bank of Luxembourg.
  8. Guido Ascari & Neil Rankin, 2004. "Perpetual youth and endogenous labour supply: a problem and a possible solution," Working Paper Series 346, European Central Bank.
  9. Fabio Rumler, 2005. "Estimates of the open economy New Keynesian Phillips curve for euro area countries," Working Paper Series 496, European Central Bank.
  10. Alistair Dieppe & Jerome Henry & Peter Mc Adam, . "Labour market dynamics in the euro area: A model-based sensitivity analysis," Modeling, Computing, and Mastering Complexity 2003 09, Society for Computational Economics.
  11. Carl R. Gwin & David D. Van Hoose, 2008. "Disaggregate Evidence On Price Stickiness And Implications For Macro Models," Economic Inquiry, Western Economic Association International, vol. 46(4), pages 561-575, October.
  12. Luis F. Céspedes & Marcelo Ochoa & Claudio Soto, 2005. "The New Keynesian Phillips Curve in an Emerging Market Economy: The Case of Chile," Working Papers Central Bank of Chile 355, Central Bank of Chile.

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