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Estimating a New Keynesian Phillips Curve with a Corrected Measure of Real Marginal Cost: Evidence in Japan

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  • Muto, Ichiro

Abstract

We estimate a New Keynesian Phillips curve (NKPC) in Japan, focusing on the measurement of real marginal cost (RMC). Especially, we correct labor share by taking account of two kinds of labor market frictions: (i) labor adjustment costs and (ii) real wage rigidity. Our results show that the consideration of these labor market frictions greatly improves the fit of Japan's NKPC. Furthermore, if we additionally incorporate materials prices in the calculation of RMC, then the fit of the NKPC is further improved. Our most important finding is that the conventional backward-looking component is no more needed to explain Japan's inflation dynamics if we use a corrected measure of RMC.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 4662.

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Date of creation: Jul 2007
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Handle: RePEc:pra:mprapa:4662

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Citations

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Cited by:
  1. Lena Mareen Koerber & R. Anton Braun, 2010. "New Keynesian Dynamics in a Low Interest Rate Environment," 2010 Meeting Papers, Society for Economic Dynamics 531, Society for Economic Dynamics.
  2. Ichiue, Hibiki & Kurozumi, Takushi & Sunakawa, Takeki, 2011. "Inflation dynamics and labor market specifications: a Bayesian DSGE approach for Japan's economy," MPRA Paper 33391, University Library of Munich, Germany.
  3. Mazumder, Sandeep, 2011. "Cost-based Phillips Curve forecasts of inflation," Journal of Macroeconomics, Elsevier, Elsevier, vol. 33(4), pages 553-567.
  4. Masahiko Shibamoto, 2009. "The Estimation of the New Keynesian Phillips Curve in Japan and Its Implication for the Inflation Response to a Monetary Policy Shock," Discussion Paper Series, Research Institute for Economics & Business Administration, Kobe University 235, Research Institute for Economics & Business Administration, Kobe University.
  5. Selen Baser & Hande Kucuk & Fethi Ogunc, 2013. "Inflation Dynamics in Turkey : In Pursuit of a Domestic Cost Measure," CBT Research Notes in Economics, Research and Monetary Policy Department, Central Bank of the Republic of Turkey 1311, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  6. Gene Ambrocio & Tae-Seok Jang, 2009. "Productivity Shocks and the New Keynesian Phillips Curve: Evidence from US and Euro Area," Kiel Advanced Studies Working Papers, Kiel Institute for the World Economy 453, Kiel Institute for the World Economy.
  7. Alan Domić, 2012. "An application of New Keynesian models to inflation in Croatia," Business Systems Research, Society for Promotion of Business Information Technology (BIT), vol. 3(2), pages 6-13.
  8. Muto, Ichiro & Shintani, Kohei, 2014. "An Empirical Study on the New Keynesian Wage Phillips Curve: Japan and the US," MPRA Paper 53934, University Library of Munich, Germany.

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