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Estimating the New Keynesian Phillips Curve for Italian Manufacturing Sectors

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Author Info
Carla Massidda (University of Cagliari)
Abstract

The purpose of this paper is to test the general validity of the NKPC previsions for the Italian manufacturing industries. In particular we are interested in estimating the extent to which the degree of nominal inertia and the fraction of backward-looking price-setters differ from industry to industry. We attempt to address this issue by testing three different model specifications: a pure forward-looking model versus a hybrid model where an income labour share marginal cost measure is considered, and a modified hybrid model specification where marginal costs are corrected to include intermediate inputs. Our results show that the backward-looking component is statistically significant and quantitatively large for all industries. Moreover, this estimate does not depend on the model’s specification. Conversely, the parameter measuring the extent of price rigidity is sensitive to the definition of firms’ cost. Interpreting the overall results, we conclude that price-setting behaviour is not totally homogeneous among Italian firms.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2005.12.

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Date of creation: Jan 2005
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Handle: RePEc:fem:femwpa:2005.12

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Related research
Keywords: Phillips curve Inflation Unit labour cost

Find related papers by JEL classification:
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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