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Supply, Factor Shares and Inflation Persistence: Re-examining Euro-area New-Keynesian Phillips Curves

Listed author(s):
  • Peter McAdam
  • Alpo Willman

Using euro-area data, we re-examine the empirical success of New-Keynesian Phillips curves (NKPCs). We re-estimate with a suitably specified optimizing supply side (which attempts to treat non-stationarity in factor income shares and mark-ups) that allows us to derive estimates of technology parameters, marginal costs and 'price gaps'. 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 the underlying determinants of NKPCs has general applicability to a wide set of countries as well as of use for sectoral studies. Copyright 2004 Blackwell Publishing Ltd.

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Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics & Statistics.

Volume (Year): 66 (2004)
Issue (Month): s1 (09)
Pages: 637-670

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Handle: RePEc:bla:obuest:v:66:y:2004:i:s1:p:637-670
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  1. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1295-1328.
  2. Mankiw, N Gregory, 2001. "The Inexorable and Mysterious Tradeoff between Inflation and Unemployment," Economic Journal, Royal Economic Society, vol. 111(471), pages 45-61, May.
  3. Coenen, Gunter & Wieland, Volker, 2005. "A small estimated euro area model with rational expectations and nominal rigidities," European Economic Review, Elsevier, vol. 49(5), pages 1081-1104, July.
  4. Sbordone, Argia M., 2002. "Prices and unit labor costs: a new test of price stickiness," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 265-292, March.
  5. Roberts, John M, 1995. "New Keynesian Economics and the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 975-984, November.
  6. McAdam, Peter & Willman, Alpo, 2003. "New Keynesian Phillips Curves: a reassessment using euro-area data," Working Paper Series 265, European Central Bank.
  7. Julio Rotemberg, 1987. "The New Keynesian Microfoundations," NBER Chapters,in: NBER Macroeconomics Annual 1987, Volume 2, pages 69-116 National Bureau of Economic Research, Inc.
  8. Michael Bruno & Jeffrey D. Sachs, 1985. "Economics of Worldwide Stagflation," NBER Books, National Bureau of Economic Research, Inc, number brun85-1, October.
  9. Fagan, Gabriel & Henry, Jérôme & Mestre, Ricardo, 2001. "An area-wide model (AWM) for the euro area," Working Paper Series 0042, European Central Bank.
  10. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, August.
  11. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
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