What Do Micro Price Data Tell Us on the Validity of the New Keynesian Phillips Curve?

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu Abstract: The New Keynesian Phillips curve (NKPC) has become the dominant model on inflation dynamics. Moreover, a large body of empirical research has documented in recent years price-setting behaviour at the individual level, which allows the assessment of the microfoundations of pricing models. It is found that a generalised version of the hybrid NKPC of Gali and Gertler (1999) accounts for a number of stylised facts, including rule of thumb price setters, and inflation persistence. Other frequently used versions of the NKPC, such as those that consider full or partial indexation or costs of adjustment, are clearly at odds with micro price evidence. Terms of use: Documents in I n s t i t u t f ü r W e l t w i r t s c h a f t a n d e r U n i v e r s i t ä t K i e l K i e l I n s t i t u t e f o r t h e W o r l d E c o n o m y Kiel Institute for World Economics

Macroeconomic Modeling for Monetary Policy Evaluation

“…Under the most common formulation, due to Calvo (1983), each period a …rm adjust its price with a …xed probability that is independent of history. 6 This assumption is not an unreasonable approximation of the evidence (Nakamura and Steinsson (2007) and Alvarez (2007)).…”

Price Rigidity: Microeconomic Evidence and Macroeconomic Implications

“…Comprehensive data on consumer prices in a number of countries other than the U.S. have in recent years become available to academic researchers. Alvarez (2008) and Klenow and Malin (2011) tabulate studies using these data and their conclusions regarding the frequency of price change. An 7 The difference is even larger when we look at the results reported in Klenow and Kryvtsov (2008).…”

“…Recent studies also apply similar methods to broad based BLS datasets on U.S. producer prices both for domestic and internationally traded goods (Nakamura and Steinsson, 2008a;Goldberg and Hellerstein, 2011;Gopinath and Rigobon, 2008) as well as producer prices in other countries (see Alvarez (2008) and Klenow and Malin (2011) for citations). This literature is less extensive than the literature on consumer prices mainly because producer price data are less readily available to researchers.…”

Elusive Persistence: Wage and Price Rigidities, the New Keynesian Phillips Curve and Inflation Dynamics

“…Mihailov et al (2009) also find in favour of the NKPC; this study finds that terms of trade are significant, but that the output gap is not. Alvarez (2007), in a meta‐analysis of microeconomic evidence for OECD countries, finds evidence that partially supports the NKPC hybrid model, although he finds that rule of thumb price setters change prices less rather than more frequently. He also finds elements of state dependence – more frequent price changes with increased inflation – along the lines implied by Devereux and Yetman (2002).…”