1 What do micro price data tell us on the validity of the New Keynesian Philips Curve?1

Abstract: The New Keynesian Phillips curve (NKPC) has become the dominant model on inflation dynamics. Moreover, a large body of empirical research has documented price-setting behaviour at the individual level, which allows the assessment of the micro-foundations of its different variants. Some of the main micro findings are as follows: The Calvo model, if sectoral heterogeneity is allowed for, seems to provide an adequate representation of micro data. Survey evidence shows that a large fraction of firms are not forward looking, in line with hybrid versions of NKPC. Other explanations of inflation persistence, such as indexation, are clearly at odds with micro evidence