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The Phillips Curve, the Persistence of Inflation, and the Lucas Critique: Evidence from Exchange-Rate Regimes: Comment

  • Alex Lammertsma
  • Clemens J. M. Kool

The purpose of this comment is to demonstrate that their theoretical result concerning the first order derivative of relative inflation persistence with respect to the degree of accommodation is incorrect. As a consequence, the sign of the first derivative becomes ambiguous. We provide an economic explanation of this result, elaborating on the three distinct transmission mechanisms in the AS (relative) model. Moreover, we propose an economically meaningful modification of the original AS model that restores a strictly positive relation between exchange rate accommodation and relative inflation persistence.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.90.1.312
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 90 (2000)
Issue (Month): 1 (March)
Pages: 312-315

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Handle: RePEc:aea:aecrev:v:90:y:2000:i:1:p:312-315
Note: DOI: 10.1257/aer.90.1.312
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  1. Dornbusch, Rudiger, 1982. "PPP Exchange-Rate Rules and Macroeconomic Stability," Journal of Political Economy, University of Chicago Press, vol. 90(1), pages 158-65, February.
  2. Alogoskoufis, George S, 1992. "Monetary Accommodation, Exchange Rate Regimes and Inflation Persistence," Economic Journal, Royal Economic Society, vol. 102(412), pages 461-80, May.
  3. Tamim Bayoumi & Barry Eichengreen & Jürgen von Hagen, 1997. "European Monetary Unification: Implications of Research for Policy, Implications of Policy for Research," Open Economies Review, Springer, vol. 8(1), pages 71-90, January.
  4. Erceg, Christopher J. & Henderson, Dale W. & Levin, Andrew T., 1998. "Tradeoffs Between Inflation and Output-Gap Variances in an Optimizing-Agent Model," Seminar Papers 650, Stockholm University, Institute for International Economic Studies.
  5. Artis, Michael J & Ormerod, Paul, 1991. "Is There an `EMS' Effect in European Labour Markets?," CEPR Discussion Papers 598, C.E.P.R. Discussion Papers.
  6. Roberts, John M, 1995. "New Keynesian Economics and the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 975-84, November.
  7. Eichengreen, Barry, 1998. "European Monetary Unification: A Tour d'Horizon," Oxford Review of Economic Policy, Oxford University Press, vol. 14(3), pages 24-40, Autumn.
  8. Maria Demertzis & Andrew Hughes Hallett, 1996. "Regional Inequalities and the Business Cycle: An Explanation of the Rise in European Unemployment," Regional Studies, Taylor & Francis Journals, vol. 30(1), pages 15-29.
  9. Alogoskoufis, George S & Smith, Ron, 1991. "The Phillips Curve, the Persistence of Inflation, and the Lucas Critique: Evidence from Exchange-Rate Regimes," American Economic Review, American Economic Association, vol. 81(5), pages 1254-75, December.
  10. Hamid Faruqee & Douglas Laxton & Bart Turtelboom & Peter Isard & Eswar Prasad, 1998. "Multimod Mark III: The Core Dynamic and Steady State Model," IMF Occasional Papers 164, International Monetary Fund.
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