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Aggregate Supply and Potential Output

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  • Assaf Razin

Abstract

The New-Keynesian aggregate supply derives from micro-foundations an inflation-dynamics model very much like the tradition in the monetary literature. Inflation is primarily affected by: (i) economic slack; (ii) expectations; (iii) supply shocks; and (iv) inflation persistence. This paper extends the New Keynesian aggregate supply relationship to include also fluctuations in potential output, as an additional determinant of the relationship. Implications for monetary rules and to the estimation of the Phillips curve are pointed out.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10294.

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Date of creation: Feb 2004
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Handle: RePEc:nbr:nberwo:10294

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  1. Galí, Jordi & Gertler, Mark & López-Salido, J David, 2001. "European Inflation Dynamics," CEPR Discussion Papers 2684, C.E.P.R. Discussion Papers.
  2. Laurence Ball & N. Gregory Mankiw & David Romer, 1988. "The New Keynsesian Economics and the Output-Inflation Trade-off," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 1-82.
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  7. Okun, Arthur M, 1978. "Efficient Disinflationary Policies," American Economic Review, American Economic Association, vol. 68(2), pages 348-52, May.
  8. By Mohsin S. Khan & Abdelhak S. Senhadji, 2001. "Threshold Effects in the Relationship Between Inflation and Growth," IMF Staff Papers, Palgrave Macmillan, vol. 48(1), pages 1.
  9. Laurence Ball, 1993. "What determines the sacrifice ratio?," Working Papers 93-21, Federal Reserve Bank of Philadelphia.
  10. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-34, June.
  11. Assaf Razin & Chi-Wa Yuen, 2001. "The "New Keynesian" Phillips Curve: Closed Economy vs. Open Economy," NBER Working Papers 8313, National Bureau of Economic Research, Inc.
  12. Jordi Galí & Tommaso Monacelli, 2003. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," Working Papers 11, Barcelona Graduate School of Economics.
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  14. 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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Cited by:
  1. Ashoka Mody & Franziska Ohnsorge, 2007. "Can Domestic Policies Influence Inflation?," IMF Working Papers 07/257, International Monetary Fund.
  2. Sweidan, Osama D. & Widner, Benjamin, 2008. "Transparency and central bank losses in developing countries," Research in Economics, Elsevier, vol. 62(1), pages 45-54, March.

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