EconPapers    
Economics at your fingertips  
 

The Phillips curve under state-dependent pricing

Hasan Bakhshi, Hashmat Khan () and Barbara Rudolf ()

No 2005-01, Working Papers from Swiss National Bank

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 originallydev eloped byDotsey , 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 bythe model for a broad class of time and state-dependent price-setting behaviours are well approximated bythe popular hybrid NKPC (with one lag of inflation) in a low-inflation environment. This provides an explanation of whythe hybrid NKPC performs well in describing inflation dynamics across industrial countries. It implies, however, that the reduced-form coefficients of the hybrid NKPC maynot have a structural interpretation.

Keywords: state-dependent pricing; inflation dynamics; Phillips curve (search for similar items in EconPapers)
JEL-codes: E44 E51 E52 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.snb.ch/n/mmr/reference/working_paper_2 ... _paper_2005_01.n.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:snb:snbwpa:2005-01

Access Statistics for this paper

More papers in Working Papers from Swiss National Bank Contact information at EDIRC.
Bibliographic data for series maintained by Enzo Rossi ().

 
Page updated 2020-09-16
Handle: RePEc:snb:snbwpa:2005-01