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Estimating Pipeline Pressures in New Keynesian Phillips Curves: A Bayesian VAR-GMM Approach

Author

Listed:
  • Yoshibumi Makabe

    (Bank of Japan)

  • Yosuke Matsumoto

    (Bank of Japan)

  • Wataru Hirata

    (Bank of Japan)

Abstract

This paper considers a vertical production chain in an otherwise canonical sticky price model, and estimates the New Keynesian Phillips Curve with the vertical production stages (PS-NKPC), using the commodity-flow-based U.S. price data. We employ a Bayesian VAR-GMM method and compare the PS-NKPC with the canonical NKPC based on a quasi-marginal likelihood criterion, which is robust under weakly identified parameters. Thus our result adds to the empirical relevance of the so-called ``pipeline price pressures'' incurred by upstream stages of production. Our estimates suggest that (i) the PS-NKPC performs better than the canonical New Keynesian Phillips Curve in terms of quasi-marginal likelihood-based model comparison, and (ii) pipeline price pressures have non-negligible impacts on consumer price inflation as well as producer price inflation.

Suggested Citation

  • Yoshibumi Makabe & Yosuke Matsumoto & Wataru Hirata, 2023. "Estimating Pipeline Pressures in New Keynesian Phillips Curves: A Bayesian VAR-GMM Approach," Bank of Japan Working Paper Series 23-E-13, Bank of Japan.
    • Handle: RePEc:boj:bojwps:wp23e13
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    References listed on IDEAS

    as
    1. Chernozhukov, Victor & Hong, Han, 2003. "An MCMC approach to classical estimation," Journal of Econometrics, Elsevier, vol. 115(2), pages 293-346, August.
    2. Adam Hale Shapiro, 2008. "Estimating the New Keynesian Phillips Curve: A Vertical Production Chain Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(4), pages 627-666, June.
    3. Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, vol. 97(3), pages 586-606, June.
    4. Gali, Jordi & Gertler, Mark & David Lopez-Salido, J., 2005. "Robustness of the estimates of the hybrid New Keynesian Phillips curve," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1107-1118, September.
    5. Whitney Newey & Kenneth West, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
    6. Adam Hale Shapiro, 2008. "Estimating the New Keynesian Phillips Curve: A Vertical Production Chain Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(4), pages 627-666, June.
    7. Todd E. Clark, 1999. "The Responses Of Prices At Different Stages Of Production To Monetary Policy Shocks," The Review of Economics and Statistics, MIT Press, vol. 81(3), pages 420-433, August.
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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