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Inventory Investment and the Empirical Phillips Curve
Author(s) -
JUNG YONGSEUNG,
YUN TACK
Publication year - 2013
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2012.00567.x
Subject(s) - phillips curve , economics , marginal cost , inflation (cosmology) , inventory investment , econometrics , aggregate (composite) , investment (military) , production (economics) , measure (data warehouse) , microeconomics , macroeconomics , monetary policy , computer science , physics , materials science , database , politics , theoretical physics , political science , law , composite material
In this paper, we study the Calvo pricing models with finished goods inventory investment to demonstrate that the current inflation can be expressed as a function of the marginal cost of sales, not the marginal production cost, and expected future inflation. Under the assumption that the true aggregate marginal costs are not observable in actual data, we make use of equilibrium conditions for aggregate finished goods inventories to measure the time series of marginal costs, thereby leading to the construction of inflation series on the basis of the Phillips curve. Our results indicate the possibility of a successful fit of the empirical New Keynesian Phillips curve without relying on unit labor cost—a conventional measure of marginal production cost in the literature.