The forward-looking
NKPC implies a present-value (PV) relation for the price level.
Our main finding is that the
NKPC performs equally well with both measures of marginal costs, output and unit labor costs.
The
NKPC originated in descriptions of price setting by firms that possess market power.
The structural analysis of inflation dynamics can be illustrated by examining the
NKPC across both subsamples.
We find, consistent with the
NKPC, that inflation expectations matter.
A number of authors have pointed to the advantages of the forward-looking
NKPC model over the backward-looking one e.g.
Second, inflation adjustment is depicted by the
NKPC. Firms are subject to monopolistic competition and Calvo (1983) type staggered nominal price rigidities.
This is had news for the
NKPC as a model of inflation and for monetary policy.
Like its closed-economy counterpart, the model consists of an (open economy) forward looking IS curve and a
NKPC type relationship which determine output and inflation by allowing for monopolistic competition and staggered re-optimisation in the import market as in Calvo-type staggered price setting respectively.
The theory behind the
NKPC implies that the parameter [lambda] is positive.
A number of studies have looked into a new version of the Phillips curve model, the so-called new Keynesian Phillips curve, or
NKPC (Chadha, Masson, and Meredith, 1992; and Fuhrer and Moore, 1995); however, this approach is not within the scope of our work in this article.
The New Keynesian Phillips Curve (
NKPC) is a key component of much recent theoretical work on inflation.