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Aggregate Supply and Potential Output

Author

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  • Assaf Razin

    (Tel Aviv University
    Cornell University)

Abstract

The New-Keynesian aggregate supply derives from micro-foundations an inflation-dynamics model very much like the tradition in the monetary literature. Inflation is primarily affected by: (i) Economic slack; (ii) Expectations; (iii) Supply shocks; and, (iv) Inflation persistence. This paper extends the New Keynesian aggregate supply relationship to include fluctuations in potential output as an additional determinant of the relationship. Implications for monetary rules and for the estimation of the Phillips curve are pointed out.

Suggested Citation

  • Assaf Razin, 2004. "Aggregate Supply and Potential Output," Working Papers 142004, Hong Kong Institute for Monetary Research.
  • Handle: RePEc:hkm:wpaper:142004
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    References listed on IDEAS

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    4. Cohen, Daniel & Farhi, Emmanuel, 2001. "The Phillips Curves Across the Atlantic: It is the Price Curves that Differ," CEPR Discussion Papers 3100, C.E.P.R. Discussion Papers.
    5. Gali, Jordi & Gertler, Mark & Lopez-Salido, J. David, 2001. "European inflation dynamics," European Economic Review, Elsevier, vol. 45(7), pages 1237-1270.
    6. Laurence Ball, 1994. "What Determines the Sacrifice Ratio?," NBER Chapters,in: Monetary Policy, pages 155-193 National Bureau of Economic Research, Inc.
    7. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
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    10. Jordi Galí & Tommaso Monacelli, 2005. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 707-734.
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    12. Laurence Ball & N. Gregory Mankiw & David Romer, 1988. "The New Keynsesian Economics and the Output-Inflation Trade-off," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 1-82.
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    Cited by:

    1. Sweidan, Osama D. & Widner, Benjamin, 2008. "Transparency and central bank losses in developing countries," Research in Economics, Elsevier, vol. 62(1), pages 45-54, March.
    2. Sergey Sinelnikov-Murylev & Sergey Drobyshevsky & Maria Kazakova & Michael Alexeev, 2016. "Decomposition of Russia's GDP Growth Rates," Research Paper Series, Gaidar Institute for Economic Policy, issue 167P, pages 123-123.
    3. Ashoka Mody & Franziska L Ohnsorge, 2007. "Can Domestic Policies Influence Inflation?," IMF Working Papers 07/257, International Monetary Fund.
    4. Sinelnikov-Murylev, Sergei & Drobyshevskiy, Sergei & Kazakova, Maria, 2014. "Decomposition of the russian GDP growth rate in 1999-2014," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, pages 7-37, October.

    More about this item

    Keywords

    New-Keynesian Phillips Curve; Potential Output; Taylor rules;

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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