Output, inflation and the New Keynesian Phillips Curve

Chadha, J. S. and Nolan, C. (2004) Output, inflation and the New Keynesian Phillips Curve. International Review of Applied Economics, 18(3), pp. 271-287. (doi: 10.1080/0269217042000227060)

Abstract

Explicit modelling of factor markets clarifies two fundamental aspects of the New Keynesian Phillips Curve (NKPC). First, we clarify the relationship between output and marginal cost. Second, for the NKPC in inflation–output space, we identify the key stochastic influences on inflation without recourse to ad hoc cost or excess demand shocks. The econometric implementation of this clarified NKPC, which evolves strictly according news on the stream of future marginal costs, allows us jointly to derive inflation as a forecast of future variables. Our approach clarifies the empirical successes and failures of the NKPC and allows us to provide new aggregate evidence on the degree of price rigidity in the UK economy.

• Item Type: Articles
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Nolan, Professor Charles
• Authors: Chadha, J. S., and Nolan, C.
• College/School: College of Social Sciences > Adam Smith Business School > Economics
• Journal Name: International Review of Applied Economics
• Publisher: Taylor and Francis (Routledge)
• ISSN: 0269-2171
• ISSN (Online): 1465-3486