Output, Inflation and the New Keynesian Phillips Curve
Chadha, Jagjit S.
Cambridge Working Papers in Economics
Faculty of Economics
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Chadha, J. S., & Nolan, C. (2004). Output, Inflation and the New Keynesian Phillips Curve. https://doi.org/10.17863/CAM.5449
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.
inflation, Phillips Curve, marginal cost, output gap, factor markets, price stickiness, Classification-JEL: E10, E20, E31
This record's DOI: https://doi.org/10.17863/CAM.5449
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