International Competition and Inflation: A New Keynesian Perspective

Luca Guerrieri, Christopher Gust and David Lopez-Salido

American Economic Journal: Macroeconomics, 2010, vol. 2, issue 4, 247-80

Abstract: We develop and estimate an open economy New Keynesian Phillips Curve (NKPC) in which variable demand elasticities give rise to movements in desired markups in response to changes in competitive pressure from abroad. A parametric restriction yields the standard NKPC under constant elasticity and no role for foreign competition to influence domestic inflation. Foreign competition plays an important role in accounting for the behavior of traded goods price inflation. Foreign competition accounted for more than half of a 4 percentage point decline in domestic goods price inflation in the 1990s. Our results also provide evidence against demand curves with a constant elasticity. (JEL E12, E22, E31, F14, F41)

JEL-codes: E12 E22 E31 F14 F41 (search for similar items in EconPapers)
Date: 2010
Note: DOI: 10.1257/mac.2.4.247
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Citations: View citations in EconPapers (41)

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Working Paper: International Competition and Inflation: A New Keynesian Perspective (2009)
Working Paper: International competition and inflation: a New Keynesian perspective (2008)
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