Inflation dynamics: a traditional perspective.

This article focuses on deriving a structural Traditional Phillips Curve (TPC) based on a pricing mechanism where a fraction of firms set optimal prices while others use contract prices, linking inflation to expected inflation and real marginal cost within a Leontief-type production framework. The TPC is estimated for five advanced and five emerging market economies, revealing significant price rigidity consistent with survey evidence and showing that the degree of price flexibility is robust across different inflation expectations formation processes. The study finds that inflation targeting has had mixed effects on price flexibility and the Phillips curve slope, while the global financial crisis's impact varies by country. Empirical comparisons indicate that the TPC performs at least as well as, and often better than, the forward-looking New Keynesian Phillips Curve (NKPC), which exhibits parameter instability and less empirical support.