IDEAS home Printed from https://ideas.repec.org/a/sej/ancoec/v792y2012p322-349.html
   My bibliography  Save this article

European Inflation and the New Keynesian Phillips Curve

Author

Listed:
  • Sandeep Mazumder

    () (Department of Economics, Carswell Hall, Wake Forest University, Box 7505, Winston Salem, NC 27109, USA)

Abstract

The majority of macroeconomists who have studied inflation dynamics in Europe argue that the New Keynesian Phillips Curve (NKPC) provides a good way to describe changes in the price level from the 1970s on. However the vast majority of these articles estimate the NKPC using the labor income share as the proxy for real marginal cost. This article argues that the labor share cannot serve as a proxy for real marginal cost because of its countercyclicality and the lack of labor adjustment costs. Once we account for labor adjustment costs, we are able to derive a new marginal cost proxy that is indeed procyclical; however, we find that the NKPC fails to produce coefficients consistent with its underlying structural parameters when a procyclical marginal cost proxy is used. This casts serious doubt whether the NKPC is empirically applicable to Europe or, for that matter, any other country.

Suggested Citation

  • Sandeep Mazumder, 2012. "European Inflation and the New Keynesian Phillips Curve," Southern Economic Journal, Southern Economic Association, vol. 79(2), pages 322-349, October.
  • Handle: RePEc:sej:ancoec:v:79:2:y:2012:p:322-349
    DOI: 10.4284/0038-4038-2011.149
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.4284/0038-4038-2011.149
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Fabrice Orlandi & Werner Roeger & Anna Thum-Thysen, 2018. "The Return of the European Wage Phillips Curve," European Economy - Discussion Papers 2015 - 085, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    2. Phiri, Andrew, 2015. "Examining asymmetric effects in the South African Philips curve: Evidence from logistic smooth transition regression (LSTR) models," MPRA Paper 64487, University Library of Munich, Germany.
    3. Kim, Bae-Geun, 2017. "Does the New Keynesian Phillips curve need countercyclical markups?," Economic Modelling, Elsevier, vol. 63(C), pages 262-282.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sej:ancoec:v:79:2:y:2012:p:322-349. 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: (Laura Razzolini) The email address of this maintainer does not seem to be valid anymore. Please ask Laura Razzolini to update the entry or send us the correct email address. General contact details of provider: http://edirc.repec.org/data/seaaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.