EconPapers    
Economics at your fingertips  
 

The Phillips Curve Under State-Dependent Pricing

Barbara Rudolf () and H. Bakhshi

No 68, Computing in Economics and Finance 2005 from Society for Computational Economics

Abstract: This paper is related to a large recent literature studying the Phillips curve in sticky-price equilibrium models. It differs in allowing for the degree of price stickiness to be determined endogenously. A closed-form solution for short-term inflation is derived from the dynamic stochastic general equilibrium (DSGE) model with state-dependent pricing originally developed by Dotsey, King and Wolman. This generalised Phillips curve encompasses the New Keynesian Phillips curve (NKPC) based on Calvo-type price-setting as a special case. It describes current inflation as a function of lagged inflation, expected future inflation, and current and expected future real marginal costs. The paper demonstrates that inflation dynamics generated by the model for a broad class of time and state-dependent price-setting behaviours are well approximated by the popular hybrid NKPC (with one lag of inflation) in a low-inflation environment. This provides an explanation of why the hybrid NKPC performs well in describing inflation dynamics across industrial countries. It implies, however, that the reduced-form coefficients of the hybrid NKPC may not have a structural interpretation

Keywords: State-dependent pricing; inflation dynamics; Phillips curve. (search for similar items in EconPapers)
JEL-codes: E31 E32 (search for similar items in EconPapers)
Date: 2005-11-11
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://repec.org/sce2005/up.9922.1106047428.pdf (application/pdf)

Related works:
Journal Article: The Phillips curve under state-dependent pricing (2007) Downloads
Working Paper: The Phillips Curve Under State-Dependent Pricing (2006) Downloads
Working Paper: The Phillips curve under state-dependent pricing (2005) Downloads
Working Paper: The Phillips curve under state-dependent pricing (2004) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sce:scecf5:68

Access Statistics for this paper

More papers in Computing in Economics and Finance 2005 from Society for Computational Economics Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F. Baum ().

 
Page updated 2020-09-22
Handle: RePEc:sce:scecf5:68