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The Estimation of the New Keynesian Phillips Curve in Japan and Its Implication for the Inflation Response to a Monetary Policy Shock

Author

Listed:
  • Masahiko Shibamoto

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

Abstract

The New Keynesian Phillips Curve (NKPC) is a key building block in many modern macroeconomic models. This study assesses the empirical fit of the NKPC in Japan by estimating a variety of its specifications. Some empirical results suggest that introducing nominal interest rates into the pure forward-looking NKPC, which implies the existence of a cost channel for monetary policy, helps improve their ability to explain Japanese inflation dynamics. In addition to the existence of the cost channel for monetary policy, these results show that the use of labor share (real unit labor costs) is an important factor in estimating the NKPC. As an implication of these findings, this study proposes that, in the context of the New Keynesian economics, both the existence of the cost channel for monetary policy and the sluggish adjustment of real unit labor costs can account for the fact that there is a long time lag between a monetary policy shock and its impact on inflation.

Suggested Citation

  • Masahiko Shibamoto, 2009. "The Estimation of the New Keynesian Phillips Curve in Japan and Its Implication for the Inflation Response to a Monetary Policy Shock," Discussion Paper Series 235, Research Institute for Economics & Business Administration, Kobe University.
  • Handle: RePEc:kob:dpaper:235
    as

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    File URL: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/dp235.pdf
    File Function: First version, 2009
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    References listed on IDEAS

    as
    1. Jeremy Rudd & Karl Whelan, 2006. "Can Rational Expectations Sticky-Price Models Explain Inflation Dynamics?," American Economic Review, American Economic Association, vol. 96(1), pages 303-320, March.
    2. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October.
    3. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1295-1328.
    4. Jeremy Rudd & Karl Whelan, 2007. "Modeling Inflation Dynamics: A Critical Review of Recent Research," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(s1), pages 155-170, February.
    5. Sbordone, Argia M., 2002. "Prices and unit labor costs: a new test of price stickiness," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 265-292, March.
    6. Olivier Blanchard & Jordi Galõ, 2007. "Real Wage Rigidities and the New Keynesian Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(s1), pages 35-65, February.
    7. Ichiro Muto, 2009. "Estimating A New Keynesian Phillips Curve With A Corrected Measure Of Real Marginal Cost: Evidence In Japan," Economic Inquiry, Western Economic Association International, vol. 47(4), pages 667-684, October.
    8. Kurmann, Andre, 2005. "Quantifying the uncertainty about the fit of a new Keynesian pricing model," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1119-1134, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    New Keynesian Phillips Curve; Cost Channel of Monetary Policy; Inflation Responses to a Monetary Policy Shock;

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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