2
$\begingroup$

In a typical NKPC:

$Inflation_t = \alpha_1 Inflation_{t-1} + (1-\alpha_1) \mathbb{E}_tInflation_{t+1} + \alpha_2 RealMarginalCost + \epsilon_t$

From a micro-foundations perspective, does the parameter $\alpha_2$ (the slope of the NKPC) depends on the elasticity of demand since it is a markup over the marginal cost?

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.