A multimarket approach to estimate a New Keynesian Phillips Curve
We propose a new approach to estimate and "hybrid" New Keynesian Phillips Curve (NKPC) that includes demand pressures coming from disequilibrium relations in three different markets: (1) the monetary and financial, (2) the international, and (3) the labor market. In the application, our results show that all three markets contribute to the evolution of inflation. However, the effect of shocks on equilibrium in the labour market and short run movements in cyclical output are relatively more important than other shocks. Based on econometric tests, this specification is proved to be superior to the traditional NKPC that includes a single variable to account for demand pressures.
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