The NAICU and the Phillips Curve - An Approach Based on Micro Data

Abstract

In this paper we propose a straightforward method to derive a non-accelerating inflation capacity utilisation rate (NAICU) based on micro data. We condition the current capacity utilisation of firms on their current and planned price adjustments. The non-accelerating inflation capacity utilisation rate is then defined as the rate where a firm feels no price adjustment pressure. One of the main advantages is that this methodology uses structural aspects and does not make it necessary to operate with - often rather arbitrary - statistical filters. We show that our aggregate NAICU performs remarkably well as an indicator of inflationary pressure in a Phillips curve estimation.

Keywords: prices, capacity utilisation, NAICU, Phillips curve

JEL Classification: E31, E32, E52