New approach reveals key markets driving inflation, shaping economic policies.
The article introduces a new way to estimate a hybrid New Keynesian Phillips Curve by considering demand pressures from three different markets: monetary and financial, international, and labor. The results show that all three markets affect inflation, with labor market equilibrium and short-term output fluctuations playing a bigger role. This new approach is proven to be better than the traditional method that only considers one variable for demand pressures.