Notes on the Inflation Dynamics of the New Keynesian Phillips Curve
16 Pages Posted: 9 Dec 2012
Date Written: August 1, 2007
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: Suggested Citation