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The 'New Keynesian' Phillips Curve: Closed Economy versus Open Economy

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  • Razin, Assaf
  • Yuen, Chi-Wa

Abstract

The Paper extends Woodford’s (2000) analysis of the closed economy Phillips curve to an open economy with both commodity trade and capital mobility. We show that consumption smoothing, which comes with the opening of the capital market, raises the degree of strategic complementarity among monopolistic competitive suppliers, thus rendering prices more sticky and magnifying output responses to nominal GDP shocks.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3083.

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Date of creation: Nov 2001
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Handle: RePEc:cpr:ceprdp:3083

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Keywords: capital mobility; new keynesian; Phillips curve; trade;

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References

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  1. Roberts, John M, 1995. "New Keynesian Economics and the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 27(4), pages 975-84, November.
  2. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  3. Prakash Loungani & Assaf Razin & Chi-Wa Yuen, 1997. "Capital mobility and the output-inflation tradeoff," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 577, Board of Governors of the Federal Reserve System (U.S.).
  4. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
  5. Lane, Philip R., 1999. "The New Open Economy Macroeconomics: a Survey," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2115, C.E.P.R. Discussion Papers.
  6. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
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