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The NAICU and the Phillips curve – An Approach Based on Micro Data

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Abstract

In this paper we propose a straightforward method to derive a non-accelerating inflation capacity utilisation rate (NAICU) based on micro data. We condition the current capacity utilisation of firms on their current and planned price adjustments. The non-accelerating inflation capacity utilisation rate is then defined as the rate where a firm feels no price adjustment pressure. One of the main advantages is that this methodology uses structural aspects and does not make it necessary to operate with –often rather arbitrary– statistical filters. We show that our aggregate NAICU performs remarkably well as an indicator of inflationary pressure in a Phillips curve estimation.

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Bibliographic Info

Paper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 08-211.

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Length: 25 pages
Date of creation: Nov 2008
Date of revision:
Handle: RePEc:kof:wpskof:08-211

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Keywords: prices; capacity utilisation; NAICU; Phillips curve;

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  1. A. Orphanides & J. Williams, 2003. "The decline of activist stabilization policy: natural rate misperceptions, learning, and expectations," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
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  13. Robert J. Gordon, 1998. "Foundations of the Goldilocks Economy: Supply Shocks and the Time-Varying NAIRU," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 297-346.
  14. Sarah M. Rupprecht, 2007. "When Do Firms Adjust Prices? Evidence from Micro Panel Data," KOF Working papers 07-160, KOF Swiss Economic Institute, ETH Zurich.
  15. Nicoletta Batini & Jennifer V. Greenslade, 2006. "Measuring the UK short-run NAIRU," Oxford Economic Papers, Oxford University Press, vol. 58(1), pages 28-49, January.
  16. Basistha, Arabinda & Nelson, Charles R., 2007. "New measures of the output gap based on the forward-looking new Keynesian Phillips curve," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 498-511, March.
  17. Carol Corrado & Joe Mattey, 1997. "Capacity Utilization," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 151-167, Winter.
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  19. Michael Woodford, 2001. "The Taylor Rule and Optimal Monetary Policy," American Economic Review, American Economic Association, vol. 91(2), pages 232-237, May.
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Cited by:
  1. Pirmin Fessler & Fabio Rumler & Gerhard Schwarz, 2014. "A micro-based non-inflationary rate of capacity utilisation as a measure of inflationary pressure: evidence for Austria," Empirica, Springer, vol. 41(1), pages 23-36, February.

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