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Shock-based inference on the Phillips curve with the cost channel

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  • Aragón, Edilean Kleber da Silva Bejarano
  • Galvão, Ana Beatriz

Abstract

Economists use the New-Keynesian Phillips Curve (NKPC) to understand the drivers of current inflation. We assess the usefulness of different combinations of demand shocks to make inference, using identification-robust procedures, on the parameters of the NKPC augmented with the monetary policy cost channel. Using US data, we find that the effect of expected inflation on current inflation is hard to pin down; and that the impact of real marginal costs on inflation is uncertain. The data also does not strongly support the monetary policy cost channel as a determinant of inflation.

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  • Aragón, Edilean Kleber da Silva Bejarano & Galvão, Ana Beatriz, 2023. "Shock-based inference on the Phillips curve with the cost channel," Economic Modelling, Elsevier, vol. 126(C).
    • Handle: RePEc:eee:ecmode:v:126:y:2023:i:c:s0264999323002316
    DOI: 10.1016/j.econmod.2023.106419
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    Keywords

    New keynesian phillips curve; Weak instruments; Identification-robust methods;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables

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