TY - JOUR

T1 - Inflation Dynamics and Real Marginal Costs

T2 - New Evidence from U.S. Manufacturing Industries

AU - Petrella, Ivan

AU - Santoro, Emiliano

N1 - JEL classification: E31; L60

PY - 2012

Y1 - 2012

N2 - 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). 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.

AB - 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). 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.

KW - Faculty of Social Sciences

KW - New Keynesian Phillips curve

KW - Aggregation

KW - Sectoral data

KW - Intermediate goods

U2 - 10.1016/j.jedc.2012.01.009,

DO - 10.1016/j.jedc.2012.01.009,

M3 - Journal article

VL - 36

SP - 779

EP - 794

JO - Journal of Economic Dynamics and Control

JF - Journal of Economic Dynamics and Control

SN - 0165-1889

IS - 5

ER -