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The Phillips Curve, the IS Curve and Monetary Transmission: Evidence for the US and the Euro Area

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  • Charles Goodhart
  • Boris Hofmann

Abstract

In this paper we assess the empirical performance of commonly used empirical specifications of the baseline New Keynesian model for the US and the euro area. We estimate standard specifications of the model and extended specifications also including non-standard determinants of aggregate supply and demand. The results suggest that based on the standard specifications it is often not possible to establish a significant link between the monetary policy instrument and output and inflation. Based on the extended specifications of the model, which take into account the significant effect of commodity prices on inflation and of house prices on the output gap, we are generally able to restore a significant monetary transmission channel. (JEL E3, E52, C22)

Suggested Citation

  • Charles Goodhart & Boris Hofmann, 2005. "The Phillips Curve, the IS Curve and Monetary Transmission: Evidence for the US and the Euro Area," CESifo Economic Studies, CESifo Group, vol. 51(4), pages 757-775.
    • Handle: RePEc:oup:cesifo:v:51:y:2005:i:4:p:757-775.
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    More about this item

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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