scholarly journals International Competition and Inflation: A New Keynesian Perspective

2010 ◽  
Vol 2 (4) ◽  
pp. 247-280 ◽  
Author(s):  
Luca Guerrieri ◽  
Christopher Gust ◽  
J. David López-Salido
Keyword(s):  
Open Economy ◽  
Phillips Curve ◽  
New Keynesian ◽  
Foreign Competition ◽  
Price Inflation ◽  
Constant Elasticity ◽  
Demand Elasticities ◽  
Traded Goods ◽  
Demand Curves ◽  
Domestic Inflation

We develop and estimate an open economy New Keynesian Phillips Curve (NKPC) in which variable demand elasticities give rise to movements in desired markups in response to changes in competitive pressure from abroad. A parametric restriction yields the standard NKPC under constant elasticity and no role for foreign competition to influence domestic inflation. Foreign competition plays an important role in accounting for the behavior of traded goods price inflation. Foreign competition accounted for more than half of a 4 percentage point decline in domestic goods price inflation in the 1990s. Our results also provide evidence against demand curves with a constant elasticity. (JEL E12, E22, E31, F14, F41)

WHICH INFLATION TO TARGET? A SMALL OPEN ECONOMY WITH STICKY WAGES

2012 ◽  
Vol 18 (1) ◽  
pp. 145-174 ◽  
Author(s):  
Alessia Campolmi
Keyword(s):  
Open Economy ◽  
Inflation Targeting ◽  
Consumer Price Index ◽  
Small Open Economy ◽  
Target Variable ◽  
Price Inflation ◽  
Standard Result ◽  
Trade Elasticity ◽  
Sticky Wages ◽  
Domestic Inflation

There is common agreement on price inflation stabilization being one of the objectives of monetary policy. But, in an open economy, two alternative measures of inflation coexist: domestic inflation and consumer price inflation. Which of the two should be the target variable? Most of the new open economy macroeconomics (NOEM) literature suggests that the monetary authority should stabilize domestic inflation. This is in sharp contrast with the practice of many inflation-targeting central banks that are using consumer price index (CPI) inflation as target variable. The paper shows that the standard result in the NOEM literature is derived under the simplifying assumption of flexible wages. The inclusion of sticky wages in an otherwise standard small open economy model is shown to rationalize CPI inflation targeting. This conclusion is robust to changes in key parameters, including the trade elasticity.

scholarly journals HAS GLOBALIZATION TRANSFORMED U.S. MACROECONOMIC DYNAMICS?

2012 ◽  
Vol 16 (2) ◽  
pp. 204-229 ◽  
Author(s):  
Fabio Milani
Keyword(s):  
Open Economy ◽  
Phillips Curve ◽  
New Keynesian ◽  
Time Varying ◽  
Closed Economy ◽  
Monetary Policy Shocks ◽  
Macroeconomic Dynamics ◽  
Keynesian Model ◽  
Policy Shocks ◽  
Openness To Trade

This paper estimates a structural New Keynesian model to test whether globalization has changed the behavior of U.S. macroeconomic variables. Several key coefficients in the model–such as the slopes of the Phillips and IS curves, the sensitivities of domestic inflation and output to “global” output, and so forth–are allowed in the estimation to depend on the extent of globalization (modeled as the changing degree of openness to trade of the economy), and, therefore, they become time-varying. The empirical results indicate that globalization can explain only a small part of the reduction in the slope of the Phillips curve. The sensitivity of U.S. inflation to global measures of output may have increased over the sample, but it remains very small. The changes in the IS curve caused by globalization are similarly modest. Globalization does not seem to have led to an attenuation in the effects of monetary policy shocks. The nested closed-economy specification still appears to provide a substantially better fit of U.S. data than various open-economy specifications with time-varying degrees of openness. Some time variation in the model coefficients over the postwar sample exists, particularly in the volatilities of the shocks, but it is unlikely to be related to globalization.

Inflation Dynamics and Monetary Policy in India: A New Keynesian Phillips Curve Perspective

2019 ◽  
Vol 8 (2) ◽  
pp. 144-179 ◽  
Author(s):  
Bhavesh Salunkhe ◽  
Anuradha Patnaik
Keyword(s):  
Price Index ◽  
Phillips Curve ◽  
Consumer Price Index ◽  
Wholesale Price ◽  
New Keynesian ◽  
Real Effective Exchange Rate ◽  
Output Gap ◽  
Moderate Degree ◽  
New Keynesian Phillips Curve ◽  
Price Inflation

The present study estimates various specifications of the New Keynesian Phillips Curve (NKPC) models for India over 1996Q2 to 2017Q2 using Consumer Price Index (CPI) and Wholesale Price Index (WPI) inflation, separately. The empirical results suggest that the data support all the specifications of the Phillips curve models based on both the CPI and WPI inflations. However, the backward looking and hybrid models provide robust results for both the inflation indices. While the forward-looking behaviour dominates the CPI inflation trajectory, the backward-looking behaviour greatly influences the trajectory of WPI inflation. Also, a small-to-moderate degree of persistence is evident in both the CPI and WPI inflation. The output gap, which mainly represents the demand side pressures, turns up the major force determining both the CPI and WPI inflations. Besides the output gap, real effective exchange rate (reer), international crude oil price inflation, global non-fuel commodity price inflation and rainfall have a modest impact on the CPI and WPI inflations. JEL Classification: E12, E52, C36, C14

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