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What Do Micro Price Data Tell Us on the Validity of the New Keynesian Phillips Curve?

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  • Alvarez González, Luis Julián

Abstract

The New Keynesian Phillips curve (NKPC) has become the dominant model on inflation dynamics. Moreover, a large body of empirical research has documented in recent years price-setting behaviour at the individual level, which allows the assessment of the microfoundations of pricing models. It is found that a generalised version of the hybrid NKPC of Gali and Gertler (1999) accounts for a number of stylised facts, including rule of thumb price setters, and inflation persistence. Other frequently used versions of the NKPC, such as those that consider full or partial indexation or costs of adjustment, are clearly at odds with micro price evidence.

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  • Alvarez González, Luis Julián, 2007. "What Do Micro Price Data Tell Us on the Validity of the New Keynesian Phillips Curve?," Kiel Working Papers 1330, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:1330
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    More about this item

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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