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Output, Inflation and the New Keynesian Phillips Curve

Jagjit Chadha () and Charles Nolan ()

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: Explicit modelling of factor markets clarifies two fundamental aspects of the New Keynesian Phillips Curve (NKPC). First, we clarify the relationship between output and marginal cost. Second, for the NKPC in inflation-output space, we identify the key stochastic influences on inflation without recourse to ad hoc cost or excess demand shocks. The econometric implementation of this clarified NKPC, based on Campbell (1987), allows us jointly to derive inflation as a forecast of future variables and infer the degree of price stickiness in real-world data. Our approach clarifies the empirical successes and failures of the NKPC.

Keywords: : inflation; Phillips Curve; marginal cost; output gap; factor markets; price stickiness (search for similar items in EconPapers)
JEL-codes: E10 E20 E31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mon
Date: 2002-02
Note: Ma
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Journal Article: Output, Inflation and the New Keynesian Phillips Curve (2004) Downloads
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