Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/152908 
Year of Publication: 
2005
Series/Report no.: 
ECB Working Paper No. 474
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
In this paper we derive a Phillips curve with a role for higher order expectations of marginal cost and future inflation. We introduce a small idiosyncratic component in firms’ marginal costs and let the economywide average marginal cost be unobservable to the individual firm. The model can then replicate the backward looking component found in estimates of the ’Hybrid’ New Keynesian Phillips Curve, even though the pricing decision of the firm is entirely forward looking. The Phillips curve derived here nests the standard New Keynesian Phillips Curve as a special case. We take a structural approach to imperfect common knowledge that allow us to infer whether the assumed information imperfections necessary to replicate the data are quantitatively realistic or not. We also provide an algorithm for solving a class of models involving dynamic higher order expectations of endogenous variables.
Subjects: 
Calvo pricing
Higher order expectations
Imperfect Common Knowledge
New-Keynesian Phillips Curve
JEL: 
E00
E31
E32
Document Type: 
Working Paper

Files in This Item:
File
Size
983.55 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.