We thank Mark Bils for valuable suggestions and comments on an earlier draft. We also appreciate helpful comments from Gary Anderson, Yongsung Chang, Benjamin Johannsen, Alejandro Justiniano, Jinill Kim, Andrew Levin, David López-Salido, and seminar participants at Georgetown University and the American Economic Association Winter Meeting 2007. All errors are our own.
Inventory Investment and the Empirical Phillips Curve
Article first published online: 22 JAN 2013
© 2013 The Ohio State University
Journal of Money, Credit and Banking
Volume 45, Issue 1, pages 201–231, February 2013
How to Cite
JUNG, Y. and YUN, T. (2013), Inventory Investment and the Empirical Phillips Curve. Journal of Money, Credit and Banking, 45: 201–231. doi: 10.1111/j.1538-4616.2012.00567.x
- Issue published online: 22 JAN 2013
- Article first published online: 22 JAN 2013
- Received April 29, 2008; and accepted in revised form January 25, 2012.
- Phillips curve;
- marginal cost;
- sales-to-stock ratio
In this paper, we study the Calvo pricing models with finished goods inventory investment to demonstrate that the current inflation can be expressed as a function of the marginal cost of sales, not the marginal production cost, and expected future inflation. Under the assumption that the true aggregate marginal costs are not observable in actual data, we make use of equilibrium conditions for aggregate finished goods inventories to measure the time series of marginal costs, thereby leading to the construction of inflation series on the basis of the Phillips curve. Our results indicate the possibility of a successful fit of the empirical New Keynesian Phillips curve without relying on unit labor cost—a conventional measure of marginal production cost in the literature.