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Estimating Pipeline Pressures in New Keynesian Phillips Curves: A Bayesian VAR-GMM Approach

August 21, 2023
Yoshibumi Makabe*1
Yosuke Matsumoto*2
Wataru Hirata*3


This paper considers a vertical production chain in an otherwise canonical sticky price model, and estimates the New Keynesian Phillips curve with the vertical production stages (PS-NKPC), using the commodity-flow-based U.S. price data. We employ a Bayesian VAR-GMM method and compare the PS-NKPC with the canonical NKPC based on a quasi-marginal likelihood criterion, which is robust under weakly identified parameters. Thus our result adds to the empirical relevance of the so-called ''pipeline price pressures'' incurred by upstream stages of production. Our estimates suggest that (i) the PS-NKPC performs better than the canonical New Keynesian Phillips curve in terms of quasi-marginal likelihood-based model comparison, and (ii) pipeline price pressures have non-negligible impacts on consumer price inflation as well as producer price inflation.

JEL classification
C11, C26, C52, E31

New Keynesian Phillips curve, VAR-GMM, Bayesian method, Production chain, Pipeline pressure.

The authors are grateful to Sohei Kaihatsu, Takushi Kurozumi, and Toyoichiro Shirota for comments and discussions. We are also grateful to Ryohei Oishi for kindly providing his and his co-authors' production code for Bayesian VAR-GMM. Any remaining errors are ours. The views expressed in this paper are those of the authors and do not necessarily reflect the views of the Bank of Japan.

  1. *1International Department (Currently Research and Statistics Department)
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  2. *2International Department (Currently Sapporo Branch)
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  3. *3International Department
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