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http://hdl.handle.net/10419/49884
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| Title: | | The New Keynesian Phillips Curve and the cyclicality of marginal cost  |
| Authors: | | Mazumder, Sandeep |
| Issue Date: | | 2008 |
| Series/Report no.: | | Working papers // the Johns Hopkins University, Department of Economics 545 |
| Abstract: | | Several authors have argued that if the labor share of income is used as the proxy for real marginal cost, then the sticky-price version of the New Keynesian Phillips Curve does a good job of approximating US inflation dynamics. However, this paper argues that the labor share is an inappropriate measure of real marginal cost for two reasons: it is countercyclical whereas theory predicts marginal cost should be procyclical, and it employs a counterfactual assumption about the behavior of labor over the business cycle. Relaxing this assumption to a more realistic one leads to a measure of marginal cost that is markedly procyclical. Testing this improved measure of marginal cost then produces results that are contradictory to the entire underlying model of the NKPC. Thus I conclude that the NKPC fails to give a sound explanation of inflation dynamics. |
| JEL: | | E31 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Working Papers, Department of Economics, The Johns Hopkins University
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