An Assessment of the New Keynesian Phillips Curve in the Korean Economy

This paper examines the validity of the new Keynesian Phillips curve in the Korean economy, which is characterized by its high dependence on foreign materials as intermediate inputs. A new Keynesian Phillips curve in an open economy is necessary for this purpose, and the attempt is based on the distinction between gross and value-added prices. It is shown that a standard new Keynesian Phillips curve can be interpreted as describing the behavior of gross price in‡ation and, therefore, it is essential to incorporate intermediate input costs in constructing marginal cost measures. Moreover, from this gross price in‡ation model, the valuedadded price in‡ation model is derived explicitly, yielding testable equations for the