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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. Working Paper. Birkbeck College, University of London, London, UK.

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    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 behaviour 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.

    Metadata

    Item Type: Monograph (Working Paper)
    Additional Information: Older version of http://eprints.bbk.ac.uk/4584
    Keyword(s) / Subject(s): New Keynesian Phillips Curve, Aggregation, Sectoral Data, Intermediate Goods
    School: Birkbeck Schools and Departments > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Depositing User: Administrator
    Date Deposited: 11 Jan 2013 13:51
    Last Modified: 27 Jul 2019 15:29
    URI: http://eprints.bbk.ac.uk/id/eprint/5957

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