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Anatomy of the Phillips Curve: micro evidence and macro implications

Author

Listed:
  • Joris Tielens

    (Economics and Research Department, National Bank of Belgium)

  • Luca Gagliardone

    (e, New York University)

  • Mark Gertler

    (e, New York University and NBER)

  • Simone Lenzu

    (e, New York University, Stern School of Business)

Abstract

We develop a bottom-up approach to estimating the slope of the primitive form of the New Keynesian Phillips curve, which features marginal cost as the relevant real activity variable. Using quarterly micro data on prices, costs, and output from the Belgian manufacturing sector, we estimate dynamic pass-through regressions that identify the degrees of nominal and real rigidities in price setting. Our estimates imply a high slope for the marginal cost-based Phillips curve, which contrasts with the low estimates of the conventional unemployment or output-based formulations in the literature. We reconcile the difference by demonstrating that, although the pass-through of marginal cost into inflation is substantial, the elasticity of marginal cost with respect to the output gap is low, at least for pre-pandemic data. We also illustrate the advantage of a marginal cost-based Phillips curve for characterizing the transmission of supply shocks to inflation.

Suggested Citation

  • Joris Tielens & Luca Gagliardone & Mark Gertler & Simone Lenzu, 2024. "Anatomy of the Phillips Curve: micro evidence and macro implications," Working Paper Research 453, National Bank of Belgium.
    • Handle: RePEc:nbb:reswpp:202408-453
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    References listed on IDEAS

    as
    1. Fernando Alvarez & Francesco Lippi, 2014. "Price Setting With Menu Cost for Multiproduct Firms," Econometrica, Econometric Society, vol. 82(1), pages 89-135, January.
    2. Mark Gertler & John Leahy, 2008. "A Phillips Curve with an Ss Foundation," Journal of Political Economy, University of Chicago Press, vol. 116(3), pages 533-572, June.
    3. Caballero, Ricardo J. & Engel, Eduardo M.R.A., 2007. "Price stickiness in Ss models: New interpretations of old results," Journal of Monetary Economics, Elsevier, vol. 54(Supplemen), pages 100-121, September.
    4. Mikhail Golosov & Robert E. Lucas Jr., 2007. "Menu Costs and Phillips Curves," Journal of Political Economy, University of Chicago Press, vol. 115(2), pages 171-199.
    5. Fernando Alvarez & Hervé Le Bihan & Francesco Lippi, 2016. "The Real Effects of Monetary Shocks in Sticky Price Models: A Sufficient Statistic Approach," American Economic Review, American Economic Association, vol. 106(10), pages 2817-2851, October.
    6. Amit Gandhi & Salvador Navarro & David A. Rivers, 2020. "On the Identification of Gross Output Production Functions," Journal of Political Economy, University of Chicago Press, vol. 128(8), pages 2973-3016.
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    Cited by:

    1. Francesco Furlanetto & Antoine Lepetit, 2024. "The Slope of the Phillips Curve," Finance and Economics Discussion Series 2024-043, Board of Governors of the Federal Reserve System (U.S.).
    2. Roberto Tamborini, 2024. "Inflation surprises in a New Keynesian economy with a “true” consumption function," Economic Inquiry, Western Economic Association International, vol. 62(3), pages 1192-1215, July.
    3. George‐Marios Angeletos & Chen Lian & Christian K. Wolf, 2024. "Can Deficits Finance Themselves?," Econometrica, Econometric Society, vol. 92(5), pages 1351-1390, September.
    4. Ángelo Gutiérrez-Daza, 2024. "Business Cycles when Consumers Learn by Shopping," Working Papers 2024-12, Banco de México.
    5. Bence Bardóczy & Jae W. Sim & Andreas Tischbirek, 2024. "The Macroeconomic Effects of Excess Savings," Finance and Economics Discussion Series 2024-062, Board of Governors of the Federal Reserve System (U.S.).

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    More about this item

    Keywords

    New Keynesian Phillips curve; dynamic passthrough; marginal cost; inflation.;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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