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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, vol. 51(4), pages 757-775.
  • Handle: RePEc:oup:cesifo:v:51:y:2005:i:4:p:757-775.
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    File URL: http://hdl.handle.net/10.1093/cesifo/51.4.757
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Proaño, Christian R., 2012. "Gradual wage-price adjustments, labor market frictions and monetary policy rules," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 220-235.
    2. Mayes, David & Virén, Matti, 2009. "Changes in behaviour under EMU," Economic Modelling, Elsevier, vol. 26(4), pages 751-759, July.
    3. repec:spo:wpecon:info:hdl:2441/eu4vqp9ompqllr09j0h0g8tgo is not listed on IDEAS
    4. Renne, J-P., 2009. "Frequency-domain analysis of debt service in a macro-finance model for the euro area," Working papers 261, Banque de France.
    5. Engelbert Stockhammer & Dimitris P. Sotiropoulos, 2014. "Rebalancing the Euro Area: The Costs of Internal Devaluation," Review of Political Economy, Taylor & Francis Journals, vol. 26(2), pages 210-233, April.
    6. Andrzej Toroj, 2009. "Macroeconomic adjustment and heterogeneity in the euro area," NBP Working Papers 54, Narodowy Bank Polski, Economic Research Department.
    7. Creel, Jérôme & Hubert, Paul & Saraceno, Francesco, 2013. "An assessment of the Stability and Growth Pact reform in a small-scale macro-framework," Journal of Economic Dynamics and Control, Elsevier, vol. 37(8), pages 1567-1580.
    8. Hawkins, Raymond J. & Nguyen, Chau N., 2017. "Macroeconomic dynamics and the IS puzzle," Economics Discussion Papers 2017-20, Kiel Institute for the World Economy (IfW).
    9. Andrzej Toroj, 2011. "Competitiveness channel in Poland and Slovakia: a pre-EMU DSGE analysis," NBP Working Papers 86, Narodowy Bank Polski, Economic Research Department.
    10. Andrzej Torój, 2009. "Solving Forward-Looking Models of Cross-Country Adjustment within the Euro Area," Central European Journal of Economic Modelling and Econometrics, CEJEME, vol. 1(3), pages 211-241, November.
    11. Muneesh Kapur & Michael Debabrata Patra, 2010. "A Monetary Policy Model Without Money for India," IMF Working Papers 10/183, International Monetary Fund.
    12. Christian Proaño Acosta, 2007. "Inflation Differentials and Business Cycle Fluctuations in the European Monetary Union," IMK Working Paper 05-2007, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    13. repec:ris:mfplwp:0001 is not listed on IDEAS

    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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