The Econometric SocietyEdited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262
Econometrica: Jul, 2023, Volume 91, Issue 4
https://doi.org/10.3982/ECTA18654
p. 1417-1455
Elisa Rubbo
This paper revisits the New Keynesian framework, theoretically and quantitatively, in an economy with multiple sectors and input‐output linkages. Analytical expressions for the Phillips curve and welfare, derived as a function of primitives, show that the slope of all sectoral and aggregate Phillips curves is decreasing in intermediate input shares, while productivity fluctuations endogenously generate an inflation‐output tradeoff—except when inflation is measured according to the novel divine coincidence index. Consistent with the theory, the divine coincidence index provides a better fit in Phillips curve regressions than consumer prices. Monetary policy can no longer achieve the first‐best, resulting in a welfare loss of 2.9% of per‐period GDP under the constrained‐optimal policy, which increases to 3.8% when targeting consumer inflation. The constrained‐optimal policy must tolerate relative price distortions across firms and sectors in order to stabilize the output gap, and it can be implemented via a Taylor rule that targets the divine coincidence index.
Elisa Rubbo
This zip file contains the replication files for the manuscript.
Elisa Rubbo
This document collects alternative regression specifications for Section 7 of the paper, and detailed proofs that were omitted from the main text.
March 5, 2024
The terms of the Editors of the Econometric Society's three journals end June 30, 2025. We are pleased to announce the incoming Editors and to thank the outgoing Editors for their excellent and continuing service.
Econometrica: Since 2019, Guido Imbens has served as the 14th Editor of Econometrica. On July 1, 2025, Marina Halac will become the Editor.
Quantitative Economics: Stéphane Bonhomme has been the Editor of Quantitative Economics since 2021. His successor will be Bernard Salanié.
Theoretical Economics: The Editor of Theoretical Economics since 2021 has been Simon Board. Taking over for him in July 2025 will be Federico Echenique.
Guido, Stéphane, and Simon have been outstanding Editors. We are grateful to them for the work they have done and will continue to do, and we look forward to further congratulating them next year. We believe Marina, Bernard, and Federico will be outstanding successors and we thank them in advance for their service.
Finally, we are grateful to Larry Samuelson for chairing all three search committees, and we thank the search committee members for their hard and fruitful work:
Econometrica: Christian Dustmann, Lars Hansen, Alessandro Lizzeri, George Mailath, Ariel Pakes, Helene Rey, and Elie Tamer.
QE: Kate Ho, Michael Keane, Felix Kubler, Whitney Newey, and Frank Schorfheide.
TE: Jeff Ely, Johannes Horner, Gilat Levy, Meg Meyer, and Ran Spiegler.
