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International Evidence on a New Keynesian Theory of the Output-Inflation Trade-Off

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  • DeFina, Robert H
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    Abstract

    This article provides empirical evidence on the validity of a "New Keynesian" theory of the output-inflation tradeoff. The theory, offered by Laurence Ball, N. Gregory Mankiw, and David Romer (1988), synthesizes recent work on "menu costs" and imperfect competition used to ground Keynesian theory in maximizing behavior. The present paper focuses on a key prediction, namely, that higher average inflation makes output less sensitive to nominal shocks. That proposition is tested using data for each of forty-three countries. Importantly, average inflation is found to have the predicted effect in a significant fraction of those countries, an outcome which supports the New Keynesian view. Copyright 1991 by Ohio State University Press.

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    Bibliographic Info

    Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

    Volume (Year): 23 (1991)
    Issue (Month): 3 (August)
    Pages: 410-22

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    Handle: RePEc:mcb:jmoncb:v:23:y:1991:i:3:p:410-22

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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    Cited by:
    1. Loungani, P. & Eazin, A. & Yuen, C.W., 1996. "Capital Mobility and the Output-Inflation Tradeoff," Papers 38-96, Tel Aviv.
    2. Sun, Rongrong, 2012. "Nominal Rigidity and Some New Evidence on the New Keynesian Theory of the Output-Inflation Tradeoff," MPRA Paper 45021, University Library of Munich, Germany.
    3. Emmanuel De Veirman, 2007. "Which nonlinearity in the Phillips curve? The absence of accelerating deflation in Japan," Reserve Bank of New Zealand Discussion Paper Series DP2007/14, Reserve Bank of New Zealand.
    4. Robert Amano & Don Coletti & Tiff Macklem, 1998. "Monetary rules when economic behaviour changes," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
    5. Koelln, Kenneth & Rush, Mark & Waldo, Doug, 1996. "Do government policy multipliers decrease with inflation?," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 495-505, December.
    6. Loo, Clifton Mark & Lastrapes, William D., 1998. "Identifying the Effects of Money Supply Shocks on Industry-Level Output," Journal of Macroeconomics, Elsevier, vol. 20(3), pages 431-449, July.
    7. Abbott, Brant & Martínez, Cristina, 2008. "An updated assessment of the Lucas supply curve and the inflation-output trade-off," Economics Letters, Elsevier, vol. 101(3), pages 199-201, December.
    8. Laurence M. Ball & Sandeep Mazumder, 2011. "Inflation Dynamics and the Great Recession," NBER Working Papers 17044, National Bureau of Economic Research, Inc.
    9. Michael T. Kiley, 1996. "Endogenous price stickiness and business cycle persistence," Finance and Economics Discussion Series 96-23, Board of Governors of the Federal Reserve System (U.S.).
    10. Emmanuel De Veirman & Andrew Levin, 2011. "Cyclical changes in firm volatility," Reserve Bank of New Zealand Discussion Paper Series DP2011/06, Reserve Bank of New Zealand.

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