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We propose a solution to address the observed negative sign on the marginal cost variable in new Keynesian Phillips curve estimations. Our solution is based on an elaborate specification of the cost function faced by firms and the formulation of a reduced-form production function which is characterised by non-linear input-output relations. The resultant Phillips curve features the standard hybrid expectational term, labour share, output gap, speed-limit effects and supply shock variables. In general, GMM estimations of the model for developed and emerging markets yield a positive and significant coefficient on the labour share and the output gap. We conclude that supply shock variables are essential to the empirical validity of the cost-based Phillips curve.

Item Type: MPRA Paper -

Original Title: A New Keynesian Triangle Phillips Curve-

Language: English-

Keywords: new Keynesian Phillips curve; marginal cost; supply shocks-

Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; DeflationB - History of Economic Thought, Methodology, and Heterodox Approaches > B2 - History of Economic Thought since 1925 > B22 - Macroeconomics-

Author: Malikane, Christopher

Source: https://mpra.ub.uni-muenchen.de/43548/

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