Supply, Factor Shares and Inflation Persistence: Re‐examining Euro‐area New‐Keynesian Phillips Curves

Peter McAdam () and Alpo Willman

Oxford Bulletin of Economics and Statistics, 2004, vol. 66, issue s1, 637-670

Abstract: Using euro‐area data, we re‐examine the empirical success of New‐Keynesian Phillips curves (NKPCs). We re‐estimate with a suitably specified optimizing supply side (which attempts to treat non‐stationarity in factor income shares and mark‐ups) that allows us to derive estimates of technology parameters, marginal costs and ‘price gaps’. 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 the underlying determinants of NKPCs has general applicability to a wide set of countries as well as of use for sectoral studies.

Date: 2004
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