Exploitability as a Specification Test of the Phillips Curve
AbstractNominal price and wage rigidity renders monetary policy effective over output. However, this effectiveness extends, under widely used overlapping-wage and Calvo-contract Phillips Curves, to planned monetary policy (‘exploitability’) and not merely to policy surprises. We argue that within both frameworks, when agents write optimal nominal contracts, they will not be exploitable by planned monetary policy. We therefore suggest non-exploitability as a specification test for Phillips Curves.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3612.
Date of creation: Oct 2002
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Find related papers by JEL classification:
- E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
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- Minford, Patrick & Peel, David, 2004. "Calvo Contracts: A Critique," CEPR Discussion Papers 4288, C.E.P.R. Discussion Papers.
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