Inflation dynamics

A structural econometric analysis

Jordi Galí, Mark Gertler

    Research output: Contribution to journalArticle

    Abstract

    We develop and estimate a structural model of inflation that allows for a fraction of firms that use a backward-looking rule to set prices. The model nests the purely forward-looking New Keynesian Phillips curve as a particular case. We use measures of marginal cost as the relevant determinant of inflation, as the theory suggests, instead of an ad hoc output gap. Real marginal costs are a significant and quantitatively important determinant of inflation. Backward-looking price setting, while statistically significant, is not quantitatively important. Thus, we conclude that the New Keynesian Phillips curve provides a good first approximation to the dynamics of inflation.

    Original languageEnglish (US)
    Pages (from-to)195-222
    Number of pages28
    JournalJournal of Monetary Economics
    Volume44
    Issue number2
    StatePublished - Oct 1999

    Fingerprint

    Inflation
    Structural econometrics
    Inflation dynamics
    Econometric analysis
    New Keynesian Phillips curve
    Approximation
    Price setting
    Ad hoc
    Structural model
    Real marginal cost
    Marginal cost
    Output gap

    Keywords

    • Inflation
    • Phillips curve
    • Real marginal cost

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics

    Cite this

    Inflation dynamics : A structural econometric analysis. / Galí, Jordi; Gertler, Mark.

    In: Journal of Monetary Economics, Vol. 44, No. 2, 10.1999, p. 195-222.

    Research output: Contribution to journalArticle

    Galí, J & Gertler, M 1999, 'Inflation dynamics: A structural econometric analysis', Journal of Monetary Economics, vol. 44, no. 2, pp. 195-222.
    Galí, Jordi ; Gertler, Mark. / Inflation dynamics : A structural econometric analysis. In: Journal of Monetary Economics. 1999 ; Vol. 44, No. 2. pp. 195-222.
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