ESTIMATING A NEW KEYNESIAN PHILLIPS CURVE WITH A CORRECTED MEASURE OF REAL MARGINAL COST: EVIDENCE IN JAPAN

We estimate a New Keynesian Phillips curve (NKPC) in Japan, focusing on the measurement of real marginal cost (RMC). Especially, we correct labor share by taking account of two kinds of labor market frictions: (1) labor adjustment costs and (2) real wage rigidity. Our results show that the considera...

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Bibliographic Details
Published in:Economic inquiry 2009-10, Vol.47 (4), p.667-684
Main Author: MUTO, ICHIRO
Format: Article
Language:English
Subjects:
Adjustment costs
Analysis
Cost estimates
Diffusion index
Employment
Eurozone
Forecasts and trends
Generalized method of moments
Inflation
Inflation (Finance)
Inflation rates
Japan
Keynesian theory
Labor costs
Labor market
Marginal costs
Model testing
Monetary economics
Monetary equilibrium
Monopolistic competition
Neokeynesianism
Phillips curve
Prices
Sticky wages
Studies
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Summary:We estimate a New Keynesian Phillips curve (NKPC) in Japan, focusing on the measurement of real marginal cost (RMC). Especially, we correct labor share by taking account of two kinds of labor market frictions: (1) labor adjustment costs and (2) real wage rigidity. Our results show that the consideration of these labor market frictions greatly improves the fit of Japan’s NKPC. Furthermore, if we additionally incorporate materials prices in the calculation of RMC then the fit of the NKPC is further improved. The conventional backward‐looking component is no more needed to explain Japan’s inflation dynamics if we use a corrected measure of RMC. (JEL E31)
ISSN:0095-2583
1465-7295
DOI:10.1111/j.1465-7295.2008.00180.x