We propose a new approach for estimating a “hybrid” New Keynesian Phillips Curve (NKPC) that includes demand pressures coming from disequilibrium relations in three different markets: (1) monetary and financial, (2) international, and (3) labour. Econometric tests indicate that this specification is superior to the traditional NKPC, which includes a single variable to account for demand pressures. Moreover, considering cointegration relationships in the monetary and labour markets is particularly useful to forecast the dynamics of Chilean inflation compared to an alternative specification based on a standard measure of output fluctuation.
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