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Openness, imported commodities and the Phillips Curve

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  • Andrew Pickering
  • Hector Valle

Abstract

This paper derives a Phillips curve with imported commodities as an additional input in the production process. Given greater reliance on exogenously priced imported commodities in production then changes in output lead to a reduced impact on marginal costs and prices. The Phillips curve becomes flatter relative to the bench-mark New Keynesian case. Empirical evidence supports the hypothesis that greater imported commodity intensity in production increases the sacrifice ratio. Econometrically controlling for imported commodity intensity also doubles the explanatory power of openness in determining the sacrifice ratio, as conjectured by Romer (1993).

Suggested Citation

  • Andrew Pickering & Hector Valle, 2008. "Openness, imported commodities and the Phillips Curve," Bristol Economics Discussion Papers 08/608, School of Economics, University of Bristol, UK.
    • Handle: RePEc:bri:uobdis:08/608
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    File URL: http://www.bristol.ac.uk/efm/media/workingpapers/working_papers/pdffiles/dp08608.pdf
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    References listed on IDEAS

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    6. Lane, Philip R., 1997. "Inflation in open economies," Journal of International Economics, Elsevier, vol. 42(3-4), pages 327-347, May.
    7. Razin, Assaf & Yuen, Chi-Wa, 2002. "The 'New Keynesian' Phillips curve: closed economy versus open economy," Economics Letters, Elsevier, vol. 75(1), pages 1-9, March.
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    Cited by:

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    2. Aquino, Juan, 2019. "The Small Open Economy New-Keynesian Phillips Curve: Specification, Structural Breaks and Robustness," Working Papers 2019-019, Banco Central de Reserva del Perú.
    3. Fernando Marques Mansilla & Elano Ferreira Arruda & Roberto Tatiwa Ferreira, 2020. "Trade openness and inflation dynamics in Brazil," Economics Bulletin, AccessEcon, vol. 40(3), pages 1948-1957.

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    More about this item

    Keywords

    openness; imported commodities; sacrifice ratio;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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