International Competition and Inflation: A New Keynesian Perspective
- (pp. 247-80)
Abstract
We develop and estimate an open economy New Keynesian Phillips Curve (NKPC) in which variable demand elasticities give rise to movements in desired markups in response to changes in competitive pressure from abroad. A parametric restriction yields the standard NKPC under constant elasticity and no role for foreign competition to influence domestic inflation. Foreign competition plays an important role in accounting for the behavior of traded goods price inflation. Foreign competition accounted for more than half of a 4 percentage point decline in domestic goods price inflation in the 1990s. Our results also provide evidence against demand curves with a constant elasticity. (JEL E12, E22, E31, F14, F41)Citation
Guerrieri, Luca, Christopher Gust, and J. David López-Salido. 2010. "International Competition and Inflation: A New Keynesian Perspective." American Economic Journal: Macroeconomics, 2 (4): 247-80. DOI: 10.1257/mac.2.4.247Additional Materials
JEL Classification
- E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian
- E22 Capital; Investment; Capacity
- E31 Price Level; Inflation; Deflation
- F14 Country and Industry Studies of Trade
- F41 Open Economy Macroeconomics
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