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International Evidence on the New Keynesian Phillips Curve Using Aggregate and Disaggregate Data

Authors

  • JOSEPH P. BYRNE,

  • ALEXANDROS KONTONIKAS,

  • ALBERTO MONTAGNOLI


  • The authors thank Mario Cerrato, Jean Imbs, Bob Hart, Campbell Leith, Dimitris Korobilis, Jim Malley, David Mayes, Charles Nolan, Ron Smith, Boriss Siliverstovs, Jan-Egbert Sturm, Gabriel Talmain, and the participants at the KOF Research Seminar and the Macroeconometric Workshop at DIW for their most useful comments and suggestions. Any remaining errors are sole responsibility of the authors.

Abstract

We present a unique empirical analysis of the properties of the New Keynesian Phillips Curve (NKPC) using an international data set of aggregate and disaggregate sectoral inflation. Our results from panel time-series estimation clearly indicate that sectoral heterogeneity has important consequences for aggregate inflation behavior. Heterogeneity helps to explain the overestimation of inflation persistence and underestimation of the role of marginal costs in empirical investigations of the NKPC that use aggregate data. We find that combining disaggregate information with heterogeneous-consistent estimation techniques helps to reconcile, to a large extent, the NKPC with the data.

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