IDEAS home Printed from https://ideas.repec.org/p/crs/wpaper/2009-03.html
   My bibliography  Save this paper

The New Keynesian Phillips Curve with Non Zero Steady State Inflation and Entry of Firms

Author

Listed:
  • Laurence BLOCH

    (Crest)

Abstract

Over the last years, a few authors have assumed a non zero steady state inflation in the derivationof the new Keynesian Phillips curve (NKPC) based on Calvo price setting with staggered prices. This hasled to the theoretical result that the slope of the NKPC decreases with trend inflation, in contrast withstylized facts showing its decline since the 1980s.In this paper, we develop an enlarged NKPC allowing for endogenous entry of firms withpreviously assumed non zero steady state inflation. Pricing complementarities are introduced on thedemand side. This NKPC exhibits the following properties: 1) its slope, though decreasing with the trend ofinflation, also decreases with the trend of the number of varieties; therefore, this NKPC reconciles theorywith stylized facts in an environment of low inflation and globalization; 2) in the long run, real averagemarginal cost and real activity not only decrease with inflation, but also increase with the number ofvarieties; 3) disinflation and deregulation in the product market (a lowering of the entry costs for firms)have complementary effects in the long run: disinflation implies more growth for lower levels of productmarket regulation.

Suggested Citation

  • Laurence BLOCH, 2009. "The New Keynesian Phillips Curve with Non Zero Steady State Inflation and Entry of Firms," Working Papers 2009-03, Center for Research in Economics and Statistics.
  • Handle: RePEc:crs:wpaper:2009-03
    as

    Download full text from publisher

    File URL: http://crest.science/RePEc/wpstorage/2009-03.pdf
    File Function: Crest working paper version
    Download Restriction: no

    More about this item

    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:crs:wpaper:2009-03. 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: (Sri Srikandan). General contact details of provider: http://edirc.repec.org/data/crestfr.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.