Is There a Phillips Curve? A Full Information Partial Equilibrium Approach

60 Pages Posted: 15 Nov 2018

See all articles by Roberto Piazza

Roberto Piazza

International Monetary Fund (IMF)

Date Written: March 2018


Empirical tests of the New Keynesian Phillips Curve have provided results often inconsistent with microeconomic evidence. To overcome the pitfalls of standard estimations on aggregate data, a Full Information Partial Equilibrium approach is developed to exploit sectoral level data. A model featuring sectoral NKPCs subject to a rich set of shocks is constructed. Necessary and sufficient conditions on the structural parameters are provided to allow sectoral idiosyncratic components to be linearly extracted. Estimation biases are corrected using the model's restrictions on the partial equilibrium propagation of idiosyncratic shocks. An application to the US, Japan and the UK rejects the purely forward looking, labor cost-based NKPC.

Keywords: Equilibrium. Econometric models, Keynesian economics, Sticky prices, Phillips Curve, Full Information, Limited Information, General, Forecasting and Simulation

JEL Classification: E30, E31, E37

Suggested Citation

Piazza, Roberto, Is There a Phillips Curve? A Full Information Partial Equilibrium Approach (March 2018). IMF Working Paper No. 18/44, Available at SSRN:

Roberto Piazza (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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