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Supply, Factor Shares and Inflation Persistence: Re‐examining Euro‐area New‐Keynesian Phillips Curves *
Author(s) -
McAdam Peter,
Willman Alpo
Publication year - 2004
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/j.1468-0084.2004.00096.x
Subject(s) - economics , phillips curve , inflation (cosmology) , econometrics , new keynesian economics , persistence (discontinuity) , factor shares , price setting , marginal cost , output gap , keynesian economics , macroeconomics , monetary policy , microeconomics , production (economics) , physics , geotechnical engineering , theoretical physics , engineering
Using euro‐area data, we re‐examine the empirical success of New‐Keynesian Phillips curves (NKPCs). We re‐estimate with a suitably specified optimizing supply side (which attempts to treat non‐stationarity in factor income shares and mark‐ups) that allows us to derive estimates of technology parameters, marginal costs and ‘price gaps’. Our resulting estimates of the euro‐area NKPCs are robust, provide reasonable estimates for fixed‐price durations and discount rates and embody plausible dynamic properties. Our method for identifying the underlying determinants of NKPCs has general applicability to a wide set of countries as well as of use for sectoral studies.