This study is part of my Ph.D. dissertation at Kobe University. I am most grateful to my supervisor Ryuzo Miyao for his valuable advice. I acknowledge John Roberts, Julen Esteban-Pretel, Tsutomu Watanabe, and the seminar participants at 2006 Advanced Workshop for Central Bankers at Northwestern University, 8th Macroeconomics Conference at Keio University, 2007 Japanese Economic Association Annual Spring Meeting, Kobe University, and the Institute for Monetary and Economic Studies for insightful comments and discussions. I also thank two anonymous referees for helpful comments and suggestions. Views expressed in this study are those of the author and do not necessarily reflect the official views of the Bank of Japan.
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ESTIMATING A NEW KEYNESIAN PHILLIPS CURVE WITH A CORRECTED MEASURE OF REAL MARGINAL COST: EVIDENCE IN JAPAN
Article first published online: 10 NOV 2008
DOI: 10.1111/j.1465-7295.2008.00180.x
© 2008 Western Economic Association International
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How to Cite
MUTO, I. (2009), ESTIMATING A NEW KEYNESIAN PHILLIPS CURVE WITH A CORRECTED MEASURE OF REAL MARGINAL COST: EVIDENCE IN JAPAN. Economic Inquiry, 47: 667–684. doi: 10.1111/j.1465-7295.2008.00180.x
Publication History
- Issue published online: 23 OCT 2009
- Article first published online: 10 NOV 2008
- Online Early publication November 10, 2008
We estimate a New Keynesian Phillips curve (NKPC) in Japan, focusing on the measurement of real marginal cost (RMC). Especially, we correct labor share by taking account of two kinds of labor market frictions: (1) labor adjustment costs and (2) real wage rigidity. Our results show that the consideration of these labor market frictions greatly improves the fit of Japan’s NKPC. Furthermore, if we additionally incorporate materials prices in the calculation of RMC then the fit of the NKPC is further improved. The conventional backward-looking component is no more needed to explain Japan’s inflation dynamics if we use a corrected measure of RMC. (JEL E31)