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Essays on price-setting models and inflation dynamics

Kim, Bae-Geun
http://rave.ohiolink.edu/etdc/view?acc_num=osu1180463984

Abstract Details

2007, Doctor of Philosophy, Ohio State University, Economics.
This dissertation investigates the empirical validity of several theories on firms' price-setting behavior and the dynamics of inflation. The first essay reexamines the new Keynesian Phillips curve based on the distinction between gross and value-added price. It is shown that a standard new Keynesian Phillips curve can be interpreted as describing the behavior of gross price inflation and, therefore, it is essential to incorporate intermediate input costs in constructing marginal cost measures. Moreover, from this gross price inflation model, the valued-added price inflation model is derived explicitly, in which the real price of intermediate inputs plays an important role. The new Keynesian Phillips curve is tested using both inflation models. Our results show that (1) the evidence for the new Keynesian Phillips curve is weak for the whole sample period regardless of model specification; (2) in some subsamples, however, especially during high and volatile inflation periods, the evidence becomes stronger for the value-added price inflation model; and (3) the effects on inflation of the real intermediate input prices and the backward-looking behavior of economic agents are substantial. The second essay studies how inflation responds differently to different types of structural shocks. For this purpose, a structural vector autoregression model is constructed that can identify the effects of shocks to the desired markup, technology and aggregate demand. The model shows that (1) inflation responds immediately to shocks to the desired markup and technology whereas it displays a hump-shaped response to a demand shock; and (2) the gradual response of inflation to a demand shock is caused by an inertial response of marginal cost, not by an inertial response of inflation to changes in marginal cost. These empirical findings imply that inflation itself does not exhibit intrinsic inertia, and thus some sticky price models need not be discarded simply because they fail to generate the hump-shaped response of inflation to a demand shock. The analyses suggest that the reason for the gradual response of inflation to a demand shock should be found by examining elements that affect production cost.
William Dupor (Advisor)
102 p.
Economics, Theory
New Keynesian Phillips curve; Inflation; Markup; Marginal cost; Sticky prices; Sticky information

Recommended Citations

Citations

  • Kim, B.-G. (2007). Essays on price-setting models and inflation dynamics [Doctoral dissertation, Ohio State University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=osu1180463984

    APA Style (7th edition)

  • Kim, Bae-Geun. Essays on price-setting models and inflation dynamics. 2007. Ohio State University, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=osu1180463984.

    MLA Style (8th edition)

  • Kim, Bae-Geun. "Essays on price-setting models and inflation dynamics." Doctoral dissertation, Ohio State University, 2007. http://rave.ohiolink.edu/etdc/view?acc_num=osu1180463984

    Chicago Manual of Style (17th edition)

osu1180463984
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© 2007, all rights reserved.
This open access ETD is published by The Ohio State University and OhioLINK.