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A Sophisticatedly Simple Alternative to the New-Keynesian Phillips Curve

In: Time and Space in Economics

Author

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  • Reiner Franke

    (Technical University)

Abstract

Summary This chapter reconsiders the standard microfoundations of the new-Keynesian-Phillips curve. It argues that with heterogeneous and boundedly rational firms, the expectational variable in the Phillips curve refers to a longer time horizon than the next period, and is updated in a gradual manner. However, firms are less naive than adaptive expectations; they also take output data into account, as well as the credibility of the central bank. At the macroeconomic level, the ideas about such an adjustment process are specified in the concept of an “adaptive inflation climate.” Exploratory estimations of the process where the inflation climate is proxied by a survey measure of expectations yield reasonable results that are supportive of this approach.

Suggested Citation

  • Reiner Franke, 2007. "A Sophisticatedly Simple Alternative to the New-Keynesian Phillips Curve," Springer Books, in: Toichiro Asada & Toshiharu Ishikawa (ed.), Time and Space in Economics, chapter 1, pages 3-28, Springer.
    • Handle: RePEc:spr:sprchp:978-4-431-45978-1_1
    DOI: 10.1007/978-4-431-45978-1_1
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    Citations

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    Cited by:

    1. Franke, Reiner, 2013. "Competitive Moment Matching of a New-Keynesian and an Old-Keynesian Model," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79988, Verein für Socialpolitik / German Economic Association.
    2. Lines Marji & Westerhoff Frank, 2012. "Effects of Inflation Expectations on Macroeconomic Dynamics: Extrapolative Versus Regressive Expectations," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 16(4), pages 1-30, October.
    3. Franke Reiner, 2012. "Microfounded Animal Spirits in the New Macroeconomic Consensus," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 16(4), pages 1-41, October.
    4. Lines, Marji & Westerhoff, Frank, 2010. "Inflation expectations and macroeconomic dynamics: The case of rational versus extrapolative expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 34(2), pages 246-257, February.
    5. Reiner Franke, 2018. "Competitive moment matching of a New-Keynesian and an Old-Keynesian model," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 13(2), pages 201-239, July.

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