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Regime shifts and the stability of backward-looking Phillips curves in open economies

  • Castelnuovo, Efrem

We assess the stability of open economy backward-looking Phillips curves estimated over two different exchange rate regimes. We calibrate a new-Keynesian monetary policy model and employ it for producing artificial data. A monetary policy break replicating the move from a Target-Zone regime to a Free-Floating regime implemented in Sweden in 1992 is modeled. We employ two different, plausibly calibrated Taylor rules to describe the Swedish monetary policy conduct, and fit a reduced-form Phillips curve to the artificial data. While not rejecting the statistical relevance of the Lucas critique, we find that its economic importance does not seem to be overwhelming.

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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 27 (2008)
Issue (Month): 1 (February)
Pages: 40-53

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Handle: RePEc:eee:jimfin:v:27:y:2008:i:1:p:40-53
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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