Do expected future marginal costs drive inflation dynamics?

Argia Sbordone

No 204, Staff Reports from Federal Reserve Bank of New York

Abstract: This article discusses a more general interpretation of the two-step minimum distance estimation procedure proposed in earlier work by Sbordone. The estimator is again applied to a version of the New Keynesian Phillips curve, in which inflation dynamics are driven by the expected evolution of marginal costs. The article clarifies econometric issues, addresses concerns about uncertainty and model misspecification raised in recent studies, and assesses the robustness of previous results. While confirming the importance of forward-looking terms in accounting for inflation dynamics, it suggests how the methodology can be applied to extend the analysis of inflation to a multivariate setting.

Keywords: inflation; New Keynesian pricing; marginal costs (search for similar items in EconPapers)
JEL-codes: E31 E32 (search for similar items in EconPapers)
Date: 2005-03-01
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: For a published version of this report, see Argia M. Sbordone, "Do Expected Future Marginal Costs Drive Inflation Dynamics?" Journal of Monetary Economics 52, no. 6 (September 2005): 1183-97.
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