Roger Bjørnstad

The New Keynesian Phillips Curve Tested on OECD Panel Data

Gali, Gertler and Lopez-Salido (2005), GGL, assert that the hybrid New Keynesian Phillips curve, NPC, is robust to different choices of estimation procedure and so some forms of specification bias. Specifically, the dominance of forward-looking behavior is robust according to GGL. We assess the NPC on a panel data set from OECD countries and find that the forward rate of inflation dominates also on the panel data set. However, when variables consistent with alternative inflation models are introduced in the models, the forward term is no longer significant. Such an outcome is predicted by the incomplete competition model of inflation, ICM, meaning that the ICM encompasses the NPC. The opposite does not apply. The non-robustness of the OECD panel data NPC is in alignment with a previous encompassing test on euro-area data, as well as tests on data from the UK and from Norway. GGL on their part do not test the robustness of the NPC features with respect to existing inflation models.

Increased Price Markup from Union Coordination: OECD Panel Evidence

Although coordination of wage bargaining probably affects entry barriers and competition in product markets, research on price determination has typically not considered such factors. We argue that the price markup depends on wage setting institutions and present empirical evidence in form of estimated price equations in a panel of 15 OECD countries. The estimates show that consumer prices may be as much as 21 percent higher in coordinated compared to uncoordinated countries, solely due to the effect of coordination on the markup. Since other studies find that coordination has a dampening effect on wages, this may explain why there is no clear effect of coordination on unemployment.