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Do expected future marginal costs drive inflation dynamics?

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Abstract

This article discusses a more general interpretation of the two-step minimum distance estimation procedure proposed in earlier work by Sbordone. The estimator is again applied to a version of the New Keynesian Phillips curve, in which inflation dynamics are driven by the expected evolution of marginal costs. The article clarifies econometric issues, addresses concerns about uncertainty and model misspecification raised in recent studies, and assesses the robustness of previous results. While confirming the importance of forward-looking terms in accounting for inflation dynamics, it suggests how the methodology can be applied to extend the analysis of inflation to a multivariate setting.

Suggested Citation

  • Argia M. Sbordone, 2005. "Do expected future marginal costs drive inflation dynamics?," Staff Reports 204, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:204
    Note: For a published version of this report, see Argia M. Sbordone, "Do Expected Future Marginal Costs Drive Inflation Dynamics?" Journal of Monetary Economics 52, no. 6 (September 2005): 1183-97.
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    1. Rudd, Jeremy & Whelan, Karl, 2005. "New tests of the new-Keynesian Phillips curve," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1167-1181, September.
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    More about this item

    Keywords

    inflation; New Keynesian pricing; marginal costs;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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