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Estimating Pipeline Pressures in New Keynesian Phillips Curves: A Bayesian VAR-GMM Approach

Yoshibumi Makabe, Yosuke Matsumoto and Wataru Hirata
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Yoshibumi Makabe: Bank of Japan
Yosuke Matsumoto: Bank of Japan

No 23-E-13, Bank of Japan Working Paper Series from Bank of Japan

Abstract: This paper considers a vertical production chain in an otherwise canonical sticky price model, and estimates the New Keynesian Phillips Curve with the vertical production stages (PS-NKPC), using the commodity-flow-based U.S. price data. We employ a Bayesian VAR-GMM method and compare the PS-NKPC with the canonical NKPC based on a quasi-marginal likelihood criterion, which is robust under weakly identified parameters. Thus our result adds to the empirical relevance of the so-called ``pipeline price pressures'' incurred by upstream stages of production. Our estimates suggest that (i) the PS-NKPC performs better than the canonical New Keynesian Phillips Curve in terms of quasi-marginal likelihood-based model comparison, and (ii) pipeline price pressures have non-negligible impacts on consumer price inflation as well as producer price inflation.

Keywords: New Keynesian Phillips curve; VAR-GMM; Bayesian method; Production chain; Pipeline pressure (search for similar items in EconPapers)
JEL-codes: C11 C26 C52 E31 (search for similar items in EconPapers)
Date: 2023-08-21
New Economics Papers: this item is included in nep-ets
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