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Regime Shifts and the Stability of Backward Looking Phillips Curves in Open Economies

Listed author(s):
  • Efrem Castelnuovo

    ()

    (University of Padua)

We assess the stability of open economy backward-looking Phillips curves estimated over two different exchange rate regimes. We calibrate a new-Keynesian monetary policy model and employ it for producing artificial data. A monetary policy break replicating the move from a Target-Zone regime to a Free-Floating regime implemented in Sweden in 1992 is modeled. We employ two different, plausibly calibrated Taylor rules to describe the Swedish monetary policy conduct, and fit a reduced-form Phillips curve to the artificial data. While not rejecting the statistical relevance of the Lucas critique, we find that its economic importance does not seem to be overwhelming.

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Paper provided by Dipartimento di Scienze Economiche "Marco Fanno" in its series "Marco Fanno" Working Papers with number 0015.

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Length: 27 pages
Date of creation: Apr 2006
Handle: RePEc:pad:wpaper:0015
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