A New Phillips Curve for Spain
In this paper we provide evidence on the fit of the New Phillips Curve (NPC) for Spain over the most recent disinflationary period (1980-1998). Some of the findings can be summarized as follows: (a) the NPC fits the data well; (b) yet, the backward looking component of inflation is important; (c) the degree of price stickiness implied by the estimates is plausible; (d) the use of independent information about prices on imported intermediate goods (which is influenced by the exchange rate) affects the measure of the firm's marginal costs and so inflation dynamics; and finally, (e) labor market frictions, as manifested in the behavior of the wage markup, appear to have also played a key role in shaping the behavior of marginal costs.
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