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New Keynesian Phillips Curves: a reassessment using euro-area data

  • McAdam, Peter
  • Willman, Alpo

Using euro-area data, we re-examine the empirical success of New Keynesian Phillips Curves (NKPCs). The nature of our re-evaluation relies on the actual empirical underpinnings of such estimates: we find existing estimates un-robust and – given that key parameters are generally calibrated rather than estimated – potentially at odds with the data. We re-estimate with a wellspecified optimizing supply-side (which attempts to treat non-stationarity in factor income shares and mark-ups) and this allows us to derive estimates of technology parameters and marginal costs. Our resulting estimates of the euro-area NKPCs are robust, provide reasonable estimates for fixed-price durations and discount rates and embody plausible dynamic properties. Our method for identifying and estimating New Keynesian Phillips curves has general applicability to a wide set of countries and might also be used in identifying sectoral NKPCs. JEL Classification: E31

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Paper provided by European Central Bank in its series Working Paper Series with number 0265.

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Date of creation: Sep 2003
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Handle: RePEc:ecb:ecbwps:20030265
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