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Traditional versus New Keynesian Phillips Curves: Evidence from Output Effects

Author

Listed:
  • Werner Roeger

    (European Commission)

  • Bernhard Herz

    (University of Bayreuth)

Abstract

We identify a crucial difference between the backwardlooking and forward-looking Phillips curve concerning the real output effects of monetary policy shocks. The backwardlooking Phillips curve predicts a strict intertemporal trade-off in the case of monetary shocks: a positive short-run response of output is followed by a period in which output is below baseline and the cumulative output effect is exactly zero. In contrast, the forward-looking model implies a positive cumulative output effect. The empirical evidence on the cumulated output effects of money is consistent with the forward-looking model. We also use this method to determine the degree of forward-looking price setting. JEL Codes

Suggested Citation

  • Werner Roeger & Bernhard Herz, 2012. "Traditional versus New Keynesian Phillips Curves: Evidence from Output Effects," International Journal of Central Banking, International Journal of Central Banking, vol. 8(1), pages 87-109, June.
    • Handle: RePEc:ijc:ijcjou:y:2012:q:2:a:3
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    References listed on IDEAS

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    Cited by:

    1. Matthieu Lemoine & Harri Turunen & Mohammed Chahad & Antoine Lepetit & Anastasia Zhutova & Pierre Aldama & Pierrick Clerc & Jean-Pierre Laffargue, 2019. "The FR-BDF Model and an Assessment of Monetary Policy Transmission in France, Working Paper Series no. 736, Banque de France," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-02400611, HAL.
    2. Binder, Carola Conces, 2015. "Whose expectations augment the Phillips curve?," Economics Letters, Elsevier, vol. 136(C), pages 35-38.
    3. Dobrescu, Emilian, 2006. "Integration of macroeconomic behavioural relationships and the input-output block: Romanian modelling experience," MPRA Paper 35748, University Library of Munich, Germany.
    4. Dobrescu, Emilian, 2006. "Macromodel of the Romanian market economy (version 2005)," MPRA Paper 35749, University Library of Munich, Germany.
    5. Matthieu Lemoine & Harri Turunen & Mohammed Chahad & Antoine Lepetit & Anastasia Zhutova & Pierre Aldama & Pierrick Clerc & Jean-Pierre Laffargue, 2019. "The FR-BDF Model and an Assessment of Monetary Policy Transmission in France," Working papers 736, Banque de France.
    6. Dunbar, Kwamie & Owusu-Amoako, Johnson, 2023. "Predicting inflation expectations: A habit-based explanation under hedging," International Review of Financial Analysis, Elsevier, vol. 89(C).
    7. Adriana Cornea‐Madeira & João Madeira, 2022. "Econometric Analysis of Switching Expectations in UK Inflation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 84(3), pages 651-673, June.

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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