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Inflation dynamics and real marginal costs: new evidence from U.S. manufacturing industries

Petrella, Ivan and Santoro, E. (2012) Inflation dynamics and real marginal costs: new evidence from U.S. manufacturing industries. Journal of Economic Dynamics and Control 36 (5), pp. 779-794. ISSN 0165-1889.

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Official URL: http://dx.doi.org/10.1016/j.jedc.2012.01.009

Abstract

This paper deals with the analysis of price-setting in U.S. manufacturing industries. Recent studies have heavily criticized the ability of the New Keynesian Phillips curve (NKPC) to fit aggregate inflation [see, e.g., Rudd and Whelan, 2006, Can Rational Expectations Sticky-Price Models Explain Inflation Dynamics?, American Economic Review, vol. 96(1), pp. 303-320]. We challenge this evidence, showing that forward-looking behavior as implied by the New Keynesian model of price-setting is widely supported at the sectoral level. In fact, current and expected future values of the income share of intermediate goods emerge as an effective driver of inflation dynamics. Unlike alternative proxies for the forcing variable, the cost of intermediate goods presents dynamic properties in line with the predictions of the New Keynesian theory.

Item Type: Article
Additional Information: Newer version of http://eprints.bbk.ac.uk/5957
Keyword(s) / Subject(s): New Keynesian Phillips Curve, Aggregation, Sectoral Data, Intermediate Goods
School or Research Centre: Birkbeck Schools and Research Centres > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
Depositing User: Administrator
Date Deposited: 01 Feb 2012 17:38
Last Modified: 17 Apr 2013 12:22
URI: http://eprints.bbk.ac.uk/id/eprint/4584

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