Notes on the Inflation Dynamics of the New Keynesian Phillips Curve

16 Pages Posted: 9 Dec 2012

Date Written: August 1, 2007

Abstract

These notes contain the derivations for results stated without proof in Hornstein (2007). First, I derive the log-linear approximation of the inflation dynamics in the Calvo-model with elements of backward-looking pricing when the approximation takes place around a positive average inflation rate. I derive a version of the "hybrid" New Keynesian Phillips Curve (NKPC) that can be estimated using standard GMM techniques. Second, I characterize the inflation dynamics implied by the NKPC when marginal cost follows an AR(1) process. For this purpose I derive the autocorrelation and crosscorrelation structure of inflation.

Keywords: inflation, nominal rigidities, New Keynesian Phillips Curve

JEL Classification: C63, E31, E32

Suggested Citation

Hornstein, Andreas, Notes on the Inflation Dynamics of the New Keynesian Phillips Curve (August 1, 2007). FRB Richmond Working Paper No. 07-04. Available at SSRN: https://ssrn.com/abstract=2186658 or http://dx.doi.org/10.2139/ssrn.2186658

Andreas Hornstein (Contact Author)

Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States
804-697-8266 (Phone)
804-697-8255 (Fax)

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