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The New Keynesian Phillips Curve: the Role of Hiring and Investment Costs

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  • Stephen Millard

    (Bank of England)

  • Eran Yashiv

    (Tel Aviv University)

  • Renato Faccini

    (Queen Mary, University of London)

Abstract

We embed convex hiring and investment costs and their interaction in a New Keynesian DSGE model with Nash wage bargaining. We explore the implications with respect to inflation dynamics in the New Keynesian Phillips curve. We use two structural estimation methods (GMM and Bayesian estimation) and two aggregate data sets (the U.S. and the U.K. economies). Our results indicate that : (i) one-step ahead inflation rate predictions are much closer to the data in the model with hiring and investment costs than in the standard New-Keynesian model without these costs. (ii) The model provides new estimates for hiring and investment frictions, price adjustment costs, wage bargaining power and the disutility of labor.

Suggested Citation

  • Stephen Millard & Eran Yashiv & Renato Faccini, 2012. "The New Keynesian Phillips Curve: the Role of Hiring and Investment Costs," 2012 Meeting Papers 556, Society for Economic Dynamics.
    • Handle: RePEc:red:sed012:556
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    References listed on IDEAS

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    Cited by:

    1. Jordi Galí & Thijs van Rens, 2021. "The Vanishing Procyclicality of Labour Productivity [Why have business cycle fluctuations become less volatile?]," The Economic Journal, Royal Economic Society, vol. 131(633), pages 302-326.

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