The role of relative prices in a generalized new Keynesian Phillips curve

Kolver Hernandez

EconoQuantum, Revista de Economia y Finanzas, 2008, vol. 5, issue 1, 35-59

Abstract: Recent literature attributes a very large fraction of the inflation volatility to "cost-push shocks." This paper develops and estimates a microfounded DSGE model that features a first-order role for relative-price dynamics. A measure of relative price disalignments appears in the new Keynesian Phillips curve (NKPC) of the model, resembling a cost-push shock. Impulse response analysis suggests that an alternative interpretation to the effects of exogenous cost-push shocks in the NKPC relies on the endogenous response of relative prices to exogenous shocks that perturb them.

Keywords: Relative prices; inflation dynamics; output fluctuations. (search for similar items in EconPapers)
JEL-codes: E30 E31 E32 (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:qua:journl:v:5:y:2008:i:1:p:35-59

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