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What do micro price data tell us on the validity of the New Keynesian Phillips Curve?

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  • Luis J. Álvarez

    (Banco de España)

Abstract

The New Keynesian Phillips Curve (NKPC) is now the dominant model of inflation dynamics. In recent years, a large body of empirical research has documented price-setting behaviour at the individual level, allowing the assessment of the micro-foundations of pricing models. This paper analyses the implications of 25 theoretical models in terms of individual behaviour and finds that they considerably differ in their ability to match the key micro stylised facts. However, none is available to account for all of them, suggesting the need to develop more realistic micro-founded price setting models.

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  • Luis J. Álvarez, 2007. "What do micro price data tell us on the validity of the New Keynesian Phillips Curve?," Working Papers 0728, Banco de España.
    • Handle: RePEc:bde:wpaper:0729
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    13. Silvia Fabiani & Martine Druant & Ignacio Hernando & Claudia Kwapil & Bettina Landau & Claire Loupias & Fernando Martins & Thomas Mathä & Roberto Sabbatini & Harald Stahl & Ad Stokman, 2006. "What Firms' Surveys Tell Us about Price-Setting Behavior in the Euro Area," International Journal of Central Banking, International Journal of Central Banking, vol. 2(3), September.
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    More about this item

    Keywords

    Pricing models; micro data; Phillips Curve; hazard rate;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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