Macroeconomic Implications of Near Rational Behavior: an Application to the Italian Phillips Curve
AbstractNew-Keynesian macroeconomic models typically conclude that longrun unemployment gravitates around the NAIRU, regardless of the nominal inflation rate. Contrastingly, the model of Akerlof, Dickens and Perry (2000) (ADP) predicts that excessively low inflation may result in a situation where unemployment is high relative to the social optimum. This paper investigates whether ADP-type short- and long-run Phillips Curves may suit the Italian economy. Firstly we estimated a short-run non accelerationist Phillips curve (i.e. where the expected inflation coefficient depends on inflation and it is generally less than unit) on Italian post-war data. Based on these results, we then simulated the long-run Phillips Curve and ran robustness checks by using a rival cointegration approach. We have two main results. First, the Italian short-run Phillips curve is actually non-accelerationist. Second, our estimates indicate that in Italy a long-run trade-o¤ between inflation and unemployment cannot be ruled out at low and moderate inflation rates.
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Bibliographic InfoPaper provided by Department of Economics, University of Siena in its series Department of Economics University of Siena with number 587.
Date of creation: Mar 2010
Date of revision:
Near-rationality; Non-accelerationist Phillips Curve; Natural rate of unemployment;
Find related papers by JEL classification:
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-17 (All new papers)
- NEP-CBA-2010-04-17 (Central Banking)
- NEP-MAC-2010-04-17 (Macroeconomics)
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