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ESTIMATING A NEW KEYNESIAN PHILLIPS CURVE WITH A CORRECTED MEASURE OF REAL MARGINAL COST: EVIDENCE IN JAPAN
Author(s) -
MUTO ICHIRO
Publication year - 2009
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.2008.00180.x
Subject(s) - economics , phillips curve , new keynesian economics , marginal cost , inflation (cosmology) , measure (data warehouse) , wage , econometrics , real wages , rigidity (electromagnetism) , keynesian economics , microeconomics , monetary policy , labour economics , physics , structural engineering , database , theoretical physics , computer science , engineering
We estimate a New Keynesian Phillips curve (NKPC) in Japan, focusing on the measurement of real marginal cost (RMC). Especially, we correct labor share by taking account of two kinds of labor market frictions: (1) labor adjustment costs and (2) real wage rigidity. Our results show that the consideration of these labor market frictions greatly improves the fit of Japan’s NKPC. Furthermore, if we additionally incorporate materials prices in the calculation of RMC then the fit of the NKPC is further improved. The conventional backward‐looking component is no more needed to explain Japan’s inflation dynamics if we use a corrected measure of RMC. (JEL E31)