Output and Inflation in Models of the Business Cycle with Nominal Rigidities: Some Counterfactual Evidence
This paper examines the relationship between cyclical output and inflation in models commonly used for monetary policy analysis. This includes models that incorporate the New Keynesian, Fuhrer-Moore and backward-looking Phillips curves. The main finding is that these models imply a strong negative relationship between inflation and output, a result that is at odds with the data. The fact that New Keynesian models yield counterfactual implications is not new; the novelty of the paper lies in the fact that the finding extends to the other variants, such as the backward-looking Phillips Curve, which has been put forward as displaying superior dynamics.
|Date of creation:||Mar 2006|
|Date of revision:|
|Publication status:||Published in Scottish Journal of Political Economy , September 2007 pp. 479-495, Vol. 54, No. 4|
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