The New Keynesian Phillips Curve for Austria – An Extension for the Open Economy
Following the empirical breakdown of the traditional Phillips curve relationship, the baseline New Keynesian Phillips Curve (NKPC) theory was formulated in the 1990s. Unlike the traditional Phillips curve, it derives from a theoretical model that is based on microeconomic principles. It expresses current inflation as a function of expected future inflation, past inflation and a measure of firms’ marginal cost. The NKPC serves to estimate the model’s structural parameters that capture price-setting behavior in an economy. This study estimates the NKPC using Austrian data. As Austria is a fairly open economy and the NKPC was initially formulated for a closed economy, the theoretical model is extended to include open-economy aspects and is then estimated in various specifications. The extended NKPC proves to explain inflation developments in Austria since 1980 quite accurately. The estimation of the structural parameters shows that around 30% of all Austrian firms change their prices every quarter, indicating that overall, prices are constant for an average of roughly ten months. Moreover, between 30% and 50% of all firms follow a backward-looking rule of thumb in setting their prices. Compared to the other euro area countries, this price duration represents an average, whereas the degree of backwardlooking behavior in price setting is above average. However, the NKPC is not found to be as suitable for forecasting purposes as time-series models, as none of the inflation forecasts based on the NKPC model was able to outperform a naive forecast (unchanged inflation rate over the forecast horizon).
Volume (Year): (2006)
Issue (Month): 4 ()
|Contact details of provider:|| Postal: |
Phone: +43/1/404 20 7405
Fax: +43/1/404 20 7499
Web page: http://www.oenb.at
More information through EDIRC
|Order Information:|| Postal: Oesterreichische Nationalbank, Documentation Management and Communications Services, Otto-Wagner Platz 3, A-1090 Vienna, Austria|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Galí, Jordi & Gertler, Mark & López-Salido, J David, 2001.
"European Inflation Dynamics,"
CEPR Discussion Papers
2684, C.E.P.R. Discussion Papers.
- Razin, Assaf & Yuen, Chi-Wa, 2001.
"The 'New Keynesian' Phillips Curve: Closed Economy versus Open Economy,"
CEPR Discussion Papers
3083, C.E.P.R. Discussion Papers.
- Razin, Assaf & Yuen, Chi-Wa, 2002. "The 'New Keynesian' Phillips curve: closed economy versus open economy," Economics Letters, Elsevier, vol. 75(1), pages 1-9, March.
- Sbordone, A.M., 1998.
"Prices and Unit Labor Costs: a New Test of Price Stickiness,"
653, Stockholm - International Economic Studies.
- 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.
- Sbordone, Argia, 1998. "Prices and Unit Labor Costs: A New Test of Price Stickiness," Seminar Papers 653, Stockholm University, Institute for International Economic Studies.
- Argia M. Sbordone, 2001. "Prices and Unit Labor Costs: A New Test of Price Stickiness," Departmental Working Papers 200112, Rutgers University, Department of Economics.
- Argia M. Sbordone, 2001. "Prices and Unit Labor Costs: A New Test of Price Stickiness," Departmental Working Papers 199822, Rutgers University, Department of Economics.
- Benalal, Nicholai & Diaz del Hoyo, Juan Luis & Landau, Bettina & Roma, Moreno & Skudelny, Frauke, 2004. "To aggregate or not to aggregate? Euro area inflation forecasting," Working Paper Series 0374, European Central Bank.
- Josef Baumgartner & Ernst Glatzer & Fabio Rumler & Alfred Stiglbauer, 2005.
"How Frequently Do Consumer Prices Change in Austria? Evidence from Micro CPI Data,"
101, Oesterreichische Nationalbank (Austrian Central Bank).
- Baumgartner, Josef & Glatzer, Ernst & Rumler, Fabio & Stiglbauer, Alfred, 2005. "How frequently do consumer prices change in Austria? Evidence from micro CPI data," Working Paper Series 0523, European Central Bank.
- Gunnar Bardsen & Eilev S. Jansen & Ragnar Nymoen, 2004. "Econometric Evaluation of the New Keynesian Phillips Curve," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(s1), pages 671-686, 09.
- Gali, Jordi & Gertler, Mark, 1999.
"Inflation dynamics: A structural econometric analysis,"
Journal of Monetary Economics,
Elsevier, vol. 44(2), pages 195-222, October.
- Jordi Galí & Mark Gertler, 1998. "Inflation dynamics: A structural econometric analysis," Economics Working Papers 341, Department of Economics and Business, Universitat Pompeu Fabra.
- Jordi Gali & Mark Gertler, 2000. "Inflation Dynamics: A Structural Econometric Analysis," NBER Working Papers 7551, National Bureau of Economic Research, Inc.
- McAdam, Peter & Willman, Alpo, 2003. "New Keynesian Phillips Curves: a reassessment using euro-area data," Working Paper Series 0265, European Central Bank.
- Campbell Leith & Jim Malley, 2007.
"Estimated Open Economy New Keynesian Phillips Curves for the G7,"
Open Economies Review,
Springer, vol. 18(4), pages 405-426, September.
- Campbell Leith & Jim Malley, 2003. "Estimated Open Economy New Keynesian Phillips Curves for the G7," CESifo Working Paper Series 834, CESifo Group Munich.
- Campbell Leith & Jim Malley, 2002. "Estimated Open Economy New Keynesian Phillips Curves for the G7," Working Papers 2002_8, Business School - Economics, University of Glasgow.
- Filippo Altissimo & Michael Ehrmann & Frank Smets, 2006. "Inflation persistence and price-setting behaviour in the euro area – a summary of the IPN evidence," Occasional Paper Series 46, European Central Bank.
- Jondeau, Eric & Le Bihan, Herve, 2005. "Testing for the New Keynesian Phillips Curve. Additional international evidence," Economic Modelling, Elsevier, vol. 22(3), pages 521-550, May.
- Batini, Nicoletta & Jackson, Brian & Nickell, Stephen, 2005. "An open-economy new Keynesian Phillips curve for the U.K," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1061-1071, September.
- Stephen Cecchetti & Guy Debelle, 2005.
"Has the inflation process changed?,"
BIS Working Papers
185, Bank for International Settlements.
- Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
When requesting a correction, please mention this item's handle: RePEc:onb:oenbmp:y:2006:i:4:b:4. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Claudia Kwapil)
If references are entirely missing, you can add them using this form.