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The New Keynesian Phillips curve with myopic agents

  • Orland, Andreas
  • Roos, Michael W.M.

Empirical estimations of the New Keynesian Phillips curve support hybrid versions with a positive weight on lagged inflation and a weight less than one on expected inflation. We argue that myopic price setting of some agents explains the low weight on expected inflation. The lagged term can be explained by trend extrapolation if information about the future is costly. In a laboratory experiment we implement the Calvo (1983) microfoundations of the Phillips curve. Our hypotheses are supported by the experimental data. About half of the subjects set optimal Calvo prices while about a third is myopic.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 37 (2013)
Issue (Month): 11 ()
Pages: 2270-2286

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Handle: RePEc:eee:dyncon:v:37:y:2013:i:11:p:2270-2286
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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