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Estimates of the New Keynesian Phillips Curve for Pakistan

  • Kalim HyderEmail author
  • Stephen G. Hall
Article
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Abstract

This paper presents estimates of the New Keynesian Phillips Curve (NKPC) for the agriculture, manufacturing and services sectors of Pakistan’s economy. The real marginal cost—derived from dynamic translog cost function—labour share of income and output gap are the indicators of economic activity along with past and expected inflation to determine inflation dynamics in each sector. The estimates of the structural parameters of the NKPC are consistent with economic theory in most of the models. Within-sample forecast performance and diagnostic tests indicate that the derived measure of real marginal cost performs better relative to the specifications with labour share of income or output gap. Further, the NKPC based on restrictive Cobb–Douglas production technology with labour input only does not perform better than the models that considers more inputs and intermediate cost. Our results show that the manufacturing is forward-looking sector followed by services and agriculture sectors.

Keywords

Inflation Phillips curve Real marginal cost Pakistan 

JEL Classification

E31 E32 E47 E52 

Notes

Compliance with ethical standards

Conflict of interest

The authors declare that they have no conflict of interest.

Ethical approval

This article does not contain any studies with human participants or animals performed by any of the authors.

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Monetary Policy DepartmentState Bank of PakistanKarachiPakistan
  2. 2.The University of Leicester School of BusinessLeicesterUK
  3. 3.University of PretoriaPretoriaSouth Africa

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