8,162 research outputs found
Determinacy of Equilibrium under Various Phillips Curves
No full textDeterminacy of equilibrium under the original, the backward-looking, the forward-looking and the hybrid Phillips curves is examined. If the monetary authority keeps the nominal money stock to be constant, the equilibrium path is always determinate under the original Phillips curve and the forward-looking one. Under the backward-looking one and the hybrid one, however, the path can be non-existent. The case of a Taylor rule is also examined. Under any of the four curves the path is always determinate if the monetary policy is active but is never determinate if it is passive.
Output Persistence from Monetary Shocks with Staggered Prices or Wages under a Taylor Rule
No full textWe analytically examine output persistence from monetary shocks in a DSGE model with staggered prices or wages under a Taylor Rule for monetary policy. The best known such model assumes Calvo-style staggering of prices and flexible wages and is known to yield no persistence under a Taylor Rule. Switching to Taylor-style staggering introduces lagged output into the model’s ‘New Keynesian Phillips Curve’ equation. Despite this, we show it generates no persistence, whether staggering is in wages or prices. Surprisingly, however, Calvo-style staggering of wages does generate persistence, if there are decreasing returns to labour.Output Persistence, Staggered Prices/Wages, Taylor Rule.
Wage and Price Phillips Curves
No full textIn this paper we introduce a small Keynesian model of economic growth which is centered around two advanced types of Phillips curves, one for money wages and one for prices, both being augmented by perfect myopic foresight and supplemented by a measure of the medium-term inflationary climate updated in an adaptive fashion. The model contains two potentially destabilizing feedback chains, the so-called Mundell and Rose-effects. We estimate parsimonious and congruent Phillips curves for money wages and prices in the US over the past five decades. Using the parameters of the empirical Phillips curves, we show that the growth path of the private sector of the model economy is likely to be surrounded by centrifugal forces. Convergence to this growth path can be generated in two ways: a Blanchard-Katz-type error-correction mechanism in the money-wage Phillips curve or a modified Taylor rule that is augmented by a term, which transmits increases in the wage share (real unit labor costs) to increases in the nominal rate of interest. Thus the model is characterized by local instability of the wage-price spiral, which however can be tamed by appropriate wage or monetary policies. Our empirical analysis finds the error-correction mechanism being ineffective in both Phillips curves suggesting that the stability of the post-war US macroeconomy originates from the stabilizing role of monetary policy.Phillips curves, Mundell effect, Rose effect, monetary policy, Taylor rule, inflation, unemployment, instability
Session 4
No full textOld Poet Remembered: The Case for the Poetry of C.S. Lewis - David Landrum, Cornerstone College
Human Destiny in That Hideous Strength - Wilfred Martens, Fresno Pacific University
Dorothy L. Sayers and the Passionate Intellect - Roger Phillips, Taylor Universit
The Phillips curve under state-dependent pricing
No full textThis paper is related to a large recent literature studying the Phillips curve in sticky-price equilibrium models. It differs in allowing for the degree of price stickiness to be determined endogenously. A closed-form solution for short-term inflation is derived from the dynamic stochastic general equilibrium (DSGE) model with state-dependent pricing originallydev eloped byDotsey , King and Wolman. This generalised Phillips curve encompasses the New Keynesian Phillips curve (NKPC) based on Calvo-type price-setting as a special case. It describes current inflation as a function of lagged inflation, expected future inflation, and current and expected future real marginal costs. The paper demonstrates that inflation dynamics generated bythe model for a broad class of time and state-dependent price-setting behaviours are well approximated bythe popular hybrid NKPC (with one lag of inflation) in a low-inflation environment. This provides an explanation of whythe hybrid NKPC performs well in describing inflation dynamics across industrial countries. It implies, however, that the reduced-form coefficients of the hybrid NKPC maynot have a structural interpretation.state-dependent pricing, inflation dynamics, Phillips curve
Wage and Price Phillips Curves An empirical analysis of destabilizing wage-price spirals
No full textIn this paper we introduce a small Keynesian model of economic growth which is centered around two advanced types of Phillips curves, one for money wages and one for prices, both being augmented by perfect myopic foresight and supplemented by a measure of the medium-term inflationary climate updated in an adaptive fashion. The model contains two potentially destabilizing feedback chains, the so-called Mundell and Rose-effects. We estimate parsimonious and congruent Phillips curves for money wages and prices in the US over the past five decades. Using the parameters of the empirical Phillips curves, we show that the growth path of the private sector of the model economy is likely to be surrounded by centrifugal forces. Convergence to this growth path can be generated in two ways: a Blanchard-Katz-type error-correction mechanism in the money-wage Phillips curve or a modified Taylor rule that is augmented by a term, which transmits increases in the wage share (real unit labor costs) to increases in the nominal rate of interest. Thus the model is characterized by local instability of the wage-price spiral, which however can be tamed by appropriate wage or monetary policies. Our empirical analysis finds the error-correction mechanism being ineffective in both Phillips curves suggesting that the stability of the post-war US macroeconomy originates from the stabilizing role of monetary policy.Phillips curves, Mundell effect, Rose effect, Monetary policy, Taylor Rule, Inflation, Unemployment, Instability
Are monetary-policy reaction functions asymmetric?: The role of nonlinearity in the Phillips curve
No full textThis paper investigates the implications of a nonlinear Phillips curve for the derivation of optimal monetary policy rules. Combined with a quadratic loss function, the optimal policy is also nonlinear, with the policy-maker increasing interest rates by a larger amount when inflation or output are above target than the amount it will reduce them when they are below target. Specifically, the main prediction of our model is that such a source of nonlinearity leads to the inclusion of the interaction between expected inflation and the output gap in an otherwise linear Taylor rule. We find empirical support for this type of asymmetries in the interest rate-setting behaviour of four European central banks but none for the US Fed.Publicad
New Keynesian Microfoundations Revisited: A Generalised Calvo-Taylor Model and the Desirability of Inflation vs. Price Level Targeting.
No full textOptimal monetary policy is sensitive to the Phillips curve used to represent the dynamics of inflation and output. Most recent literature has used a New Keynesian Phillips curve based on Calvo pricing. This paper shows that this workhorse model is not robust to relatively minor changes in its microfoundations, in particular allowing for time varying probabilitites of a firm being able to reset its price. We derive a general model that nests Calvo and the Taylor staggering model as special cases and analyse its implications for optimal policy, including the relative desirability of inflation and price level targeting.
The Nonlinear Phillips Curve and Inflation Forecast Targeting - Symmetric Versus Asymmetric Monetary Policy Rules
No full textWe extend the Svensson (1997a) inflation forecast targeting framework with a convex Phillips curve. We derive an asymmetric target rule, that implies a higher level of nominal interest rates than the Svensson (1997a) forward looking version of the reaction function popularised by Taylor (1993). Extending the analysis with uncertainty about the output gap, we find that uncertainty induces a further upward bias in nominal interest rates. Thus, the implications of uncertainty for optimal policy are the opposite of standard multiplier uncertainty analysis.inflation targets;nonlinearities;asymmetries;stochastic control
Inflation Forecasts and the New Keynesian Phillips Curve
No full textThe ability of the New Keynesian Phillips curve to explain US inflation dynamics when official central bank forecasts (Greenbook forecasts) are used as a proxy for inflation expectations is examined. The New Keynesian Phillips curve is estimated on quarterly data spanning the period 1970Q1-1998Q2 against the alternative of the Hybrid Phillips curve, which allows for a backward-looking component in the price-setting behavior in the economy. The results are compared to those obtained using actual data on future inflation as conventionally employed in empirical work under the assumption of rational expectations. The empirical evidence provides, in contrast to most of the relevant literature, considerable support for the standard forward-looking New Keynesian Phillips curve when inflation expectations are measured using official inflation forecasts. In this case, lagged inflation terms become insignificant in the hybrid specification. The usefulness of real unit labor cost as the preferred proxy for real marginal cost in recent empirical work on the Phillips curve is confirmed by our results.Money demand; Inflation; Phillips curve; Real marginal cost; Real-time data; GMM estimation
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