Non-Clearing Goods Markets and the Capacity-Utilization Phillips Curve

Abstract

Is the Phillips curve dead? I propose a simple New-Keynesian framework with goods market search-and-matching to link inflation and monetary policy to the capacity utilization rate. This approach allows to include active aggregate demand and goods market characteristics. I can derive a ”Capacity Utilization New-Keynesian Phillips Curve” with a slope that depends on the level of goods market search-and-matching frictions. It decreases in markets where aggregate demand becomes more important for market matching. The model can replicate the joint behavior of capacity utilization and macroeconomic aggregates reasonably well. The goods market search-and-matching modeling approach allows to include a large variety of household and goods market matching characteristics like demographics, sentiment, or labor market status and breaks it down to one parameter.

Konstantin Gantert
Konstantin Gantert
Visiting Assistant Professor in Economics