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Inflation dynamics and real marginal costs: New evidence from U.S. manufacturing industries

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  • Petrella, Ivan
  • Santoro, Emiliano

Abstract

This paper deals with the analysis of price-setting in U.S. manufacturing industries. Recent studies have heavily criticized the ability of the New Keynesian Phillips curve (NKPC) to fit aggregate inflation (see, e.g., Rudd and Whelan, 2006). We challenge this evidence, showing that forward-looking behavior as implied by the New Keynesian model of price-setting is widely supported at the sectoral level. In fact, current and expected future values of the income share of intermediate goods emerge as an effective driver of inflation dynamics. Unlike alternative proxies for the forcing variable, the cost of intermediate goods presents dynamic properties in line with the predictions of the New Keynesian theory.

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  • Petrella, Ivan & Santoro, Emiliano, 2012. "Inflation dynamics and real marginal costs: New evidence from U.S. manufacturing industries," Journal of Economic Dynamics and Control, Elsevier, vol. 36(5), pages 779-794.
    • Handle: RePEc:eee:dyncon:v:36:y:2012:i:5:p:779-794
    DOI: 10.1016/j.jedc.2012.01.009
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    3. Malikane, Christopher, 2014. "A new Keynesian triangle Phillips curve," Economic Modelling, Elsevier, vol. 43(C), pages 247-255.
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    5. Benjamin Born & Johannes Pfeifer, 2021. "Uncertainty‐driven business cycles: Assessing the markup channel," Quantitative Economics, Econometric Society, vol. 12(2), pages 587-623, May.
    6. Mutiu Gbade Rasaki, 2017. "An Estimated New Keynesian Phillips Curve for Nigeria," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 13(2), pages 203-211, April.
    7. Richard Ashley & Randal J. Verbrugge, 2019. "The Intermittent Phillips Curve: Finding a Stable (But Persistence-Dependent) Phillips Curve Model Specification," Working Papers 19-09R2, Federal Reserve Bank of Cleveland, revised 14 Feb 2023.
    8. Milda Norkute, 2015. "Can the sectoral New Keynesian Phillips curve explain inflation dynamics in the Euro Area?," Empirical Economics, Springer, vol. 49(4), pages 1191-1216, December.
    9. Abbas, Syed K. & Bhattacharya, Prasad Sankar & Sgro, Pasquale, 2016. "The new Keynesian Phillips curve: An update on recent empirical advances," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 378-403.
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    More about this item

    Keywords

    New Keynesian Phillips curve; Aggregation; Sectoral data; Intermediate goods;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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