Anatomy of the Phillips Curve: micro evidence and macro implications

Joris Tielens (), Luca Gagliardone (), Mark Gertler and Simone Lenzu ()
Additional contact information
Joris Tielens: Economics and Research Department, National Bank of Belgium
Luca Gagliardone: e, New York University
Simone Lenzu: e, New York University, Stern School of Business

No 453, Working Paper Research from National Bank of Belgium

Abstract: We develop a bottom-up approach to estimating the slope of the primitive form of the New Keynesian Phillips curve, which features marginal cost as the relevant real activity variable. Using quarterly micro data on prices, costs, and output from the Belgian manufacturing sector, we estimate dynamic pass-through regressions that identify the degrees of nominal and real rigidities in price setting. Our estimates imply a high slope for the marginal cost-based Phillips curve, which contrasts with the low estimates of the conventional unemployment or output-based formulations in the literature. We reconcile the difference by demonstrating that, although the pass-through of marginal cost into inflation is substantial, the elasticity of marginal cost with respect to the output gap is low, at least for pre-pandemic data. We also illustrate the advantage of a marginal cost-based Phillips curve for characterizing the transmission of supply shocks to inflation.

Keywords: New Keynesian Phillips curve; dynamic passthrough; marginal cost; inflation. (search for similar items in EconPapers)
JEL-codes: E30 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2024-08
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Anatomy of the Phillips Curve: Micro Evidence and Macro Implications (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:nbb:reswpp:202408-453

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