This paper shows that alternative production technologies imply two modifications to the New Phillips Curve (NPC): A specific 'strategic complementarity parameter' that affects the relationship between real marginal cost and inflation and a specific modification to the labour share measure of real marginal cost. Estimates of average duration of nominal price stickiness obtained conditional on the strategic complementarity parameter are substantially smaller, and therefore more plausible, relative to when this parameter is ignored. Modifications to the marginal cost measure alone have little effect on the NPC estimates. The empirical fit of the NPC under alternative production technologies is similar.

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Keywords Inflation, Marginal cost, New Phillips curve, Strategic complementarity
Persistent URL dx.doi.org/10.1016/j.euroecorev.2004.03.009
Journal European Economic Review
Citation
Gagnon, E. (Edith), & Khan, H.U. (2005). New Phillips curve under alternative production technologies for Canada, the United States, and the Euro area. European Economic Review, 49(6), 1571–1602. doi:10.1016/j.euroecorev.2004.03.009