The new Keynesian Phillips curve: an update on recent empirical advances

Abbas, Syed K., Bhattacharya, Prasad Sankar and Sgro, Pasquale 2016, The new Keynesian Phillips curve: an update on recent empirical advances, International review of economics & finance, vol. 43, pp. 378-403, doi: 10.1016/j.iref.2016.01.003.

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Title The new Keynesian Phillips curve: an update on recent empirical advances
Author(s) Abbas, Syed K.
Bhattacharya, Prasad SankarORCID iD for Bhattacharya, Prasad Sankar
Sgro, PasqualeORCID iD for Sgro, Pasquale
Journal name International review of economics & finance
Volume number 43
Start page 378
End page 403
Total pages 26
Publisher Elsevier
Place of publication Amsterdam, The Netherlands
Publication date 2016-05
ISSN 1059-0560
Keyword(s) Inflation dynamics
New Keynesian Phillips curve
Phillips curve
Price stickiness
Summary This paper presents a comprehensive review of the newly emerging literature on the New Keynesian Phillips Curve (NKPC). The theoretical predictions, econometric estimation techniques as well as the corresponding empirical evidence are discussed focusing on both the closed economy and the open economy versions of the NKPC. A number of important findings are reported about the ability of NKPC to explain the process of inflation dynamics. First, there is weak support for the open economy version of the NKPC to be able to track inflation dynamics if imported inputs are used in the production process. Second, the NKPC describes inflation dynamics across sectors if microeconomic and sectoral level data are used. Further, the survey data employed as a proxy for inflation measure in the newer studies provide enhanced support to the closed economy NKPC with the sign, size and statistical significance of coefficients in line with the theoretical predictions. We provide fresh empirical evidence to check the first finding from the review. The deep structural parameters for four different versions of the NKPC, the pure forward looking NKPC, the Gali and Monacelli's (2005) NKPC, the open economy NKPC and the open economy hybrid NKPC, are estimated for Australia, Canada, New Zealand and the United Kingdom. These estimated coefficients show some support that the specifications of open economy NKPC, which incorporate prices of imported goods as opposed to the terms of trade and real exchange rate, seems to be a better, however, weak indicator of the inflation dynamics. These findings may have important policy implications.
Language eng
DOI 10.1016/j.iref.2016.01.003
Field of Research 140212 Macroeconomics (incl Monetary and Fiscal Theory)
1402 Applied Economics
1502 Banking, Finance And Investment
Socio Economic Objective 910108 Monetary Policy
HERDC Research category C1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Copyright notice ©2016, Elsevier
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Document type: Journal Article
Collections: Faculty of Business and Law
Department of Economics
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