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The New Keynesian Phillips Curve and Imperfect Exchange Rate Pass-Through

  • Syed Kanwar Abbas ORCID logo EMAIL logo
Published/Copyright: December 2, 2022

Abstract

This paper estimates the New Keynesian Phillips Curve (NKPC) with imperfect exchange rate pass-through (alternatively, deviations from the law of one price). Our results describe the nature of inflation dynamics and business cycles under imperfect pass-through, with importance of both domestic price rigidity and import price rigidity for the US and other four open economies. The estimates of structural parameters of the import price and domestic price rigidities are not same and affect inflation-output gap elasticity and inflation-law of one price gap elasticity. The results yield implications for the stabilisation of real activity (also domestic inflation) compared to the deviations from the law of one price.

JEL Classification: E31; E32; E52

Corresponding author: Syed Kanwar Abbas, Department of Economics, International Business School Suzhou, Xi’an Jiaotong-Liverpool University, Suzhou, P. R. China, E-mail:

I thank two anonymous referees and Associate Editor, Arpad Abraham, for useful comments on earlier drafts of this paper.


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Received: 2022-01-29
Accepted: 2022-11-15
Published Online: 2022-12-02

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