IDEAS home Printed from https://ideas.repec.org/p/usi/wpaper/587.html
   My bibliography  Save this paper

Macroeconomic Implications of Near Rational Behavior: an Application to the Italian Phillips Curve

Author

Listed:
  • Novella Maugeri

Abstract

New-Keynesian macroeconomic models typically conclude that longrun unemployment gravitates around the NAIRU, regardless of the nominal inflation rate. Contrastingly, the model of Akerlof, Dickens and Perry (2000) (ADP) predicts that excessively low inflation may result in a situation where unemployment is high relative to the social optimum. This paper investigates whether ADP-type short- and long-run Phillips Curves may suit the Italian economy. Firstly we estimated a short-run non accelerationist Phillips curve (i.e. where the expected inflation coefficient depends on inflation and it is generally less than unit) on Italian post-war data. Based on these results, we then simulated the long-run Phillips Curve and ran robustness checks by using a rival cointegration approach. We have two main results. First, the Italian short-run Phillips curve is actually non-accelerationist. Second, our estimates indicate that in Italy a long-run trade-o¤ between inflation and unemployment cannot be ruled out at low and moderate inflation rates.

Suggested Citation

  • Novella Maugeri, 2010. "Macroeconomic Implications of Near Rational Behavior: an Application to the Italian Phillips Curve," Department of Economics University of Siena 587, Department of Economics, University of Siena.
    • Handle: RePEc:usi:wpaper:587
    as

    Download full text from publisher

    File URL: http://repec.deps.unisi.it/quaderni/587.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Lawrence H. Summers, 1991. "Panel discussion: price stability ; How should long-term monetary policy be determined?," Proceedings, Federal Reserve Bank of Cleveland, pages 625-631.
    2. James Tobin, 1978. "A Proposal for International Monetary Reform," Eastern Economic Journal, Eastern Economic Association, vol. 4(3-4), pages 153-159, Jul/Oct.
    3. Thomas I. Palley, 2008. "The Backward Bending Phillips Curves: A Simple Model," Working Papers wp168, Political Economy Research Institute, University of Massachusetts at Amherst.
    4. Akerlof, George A & Yellen, Janet L, 1985. "Can Small Deviations from Rationality Make Significant Differences to Economic Equilibria?," American Economic Review, American Economic Association, vol. 75(4), pages 708-720, September.
    5. Wyplosz, Charles, 2001. "Do We Know How Low Inflation Should Be?," CEPR Discussion Papers 2722, C.E.P.R. Discussion Papers.
    6. Bullard, James & Keating, John W., 1995. "The long-run relationship between inflation and output in postwar economies," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 477-496, December.
    7. Sonia Bhalotra, 2006. "Near rationality in wage setting," Applied Economics, Taylor & Francis Journals, vol. 38(21), pages 2513-2521.
    8. Bulkley, George & Myles, Gareth D., 1997. "Bargaining over effort," European Journal of Political Economy, Elsevier, vol. 13(2), pages 375-384, May.
    9. Ray C. Fair, 2000. "Estimated, Calibrated, and Optimal Interest Rate Rules," Cowles Foundation Discussion Papers 1258, Cowles Foundation for Research in Economics, Yale University.
    10. Lundborg, Per & Sacklén, Hans, 2003. "Low-Inflation Targeting and Unemployment Persistence," Working Paper Series 188, Trade Union Institute for Economic Research.
    11. Guy Debelle & James Vickery, 1998. "Is the Phillips Curve A Curve? Some Evidence and Implications for Australia," The Economic Record, The Economic Society of Australia, vol. 74(227), pages 384-398, December.
    12. Janet L. Yellen & George A. Akerlof, 2006. "Stabilization Policy: A Reconsideration," Economic Inquiry, Western Economic Association International, vol. 44(1), pages 1-22, January.
    13. George A. Akerlof & William T. Dickens & George L. Perry, 2000. "Near-Rational Wage and Price Setting and the Long-Run Phillips Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(1), pages 1-60.
    14. Bulkley, George & Myles, Gareth D, 1996. "Trade Unions, Efficiency Wages, and Shirking," Oxford Economic Papers, Oxford University Press, vol. 48(1), pages 75-88, January.
    15. Giuseppe Fontana & Alfonso Palacio‐Vera, 2007. "Are Long‐Run Price Stability And Short‐Run Output Stabilization All That Monetary Policy Can Aim For?," Metroeconomica, Wiley Blackwell, vol. 58(2), pages 269-298, May.
    16. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
    17. Debelle, Guy & Vickery, James, 1998. "Is the Phillips Curve a Curve? Some Evidence and Implications for Australia," The Economic Record, The Economic Society of Australia, vol. 74(227), pages 384-398, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lumengo Bonga-Bonga & Ntsakeseni Letitia Lebese, 2019. "Rethinking The Current Inflation Target Range In South Africa," Journal of Developing Areas, Tennessee State University, College of Business, vol. 53(2), pages 13-27, April-Jun.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Miao, Jianjun & Xie, Danyang, 2013. "Economic growth under money illusion," Journal of Economic Dynamics and Control, Elsevier, vol. 37(1), pages 84-103.
    2. Charles Wyplosz, 2001. "Do we know how low inflation should be?," IHEID Working Papers 06-2001, Economics Section, The Graduate Institute of International Studies.
    3. Koskela, Erkki & König, Jan, 2009. "Can Profit Sharing Lower Flexible Outsourcing? A Note," IZA Discussion Papers 4063, Institute of Labor Economics (IZA).
    4. Erkki Koskela & Ronnie Schöb, 2012. "Tax Progression under Collective Wage Bargaining and Individual Effort Determination," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 51(3), pages 749-771, July.
    5. Mallick, Debdulal, 2014. "A Spectral Representation of the Phillips Curve in Australia," MPRA Paper 59794, University Library of Munich, Germany.
    6. Mallick, Debdulal, 2019. "Policy regimes and the shape of the Phillips curve in Australia," Journal of Policy Modeling, Elsevier, vol. 41(6), pages 1077-1094.
    7. James Vickery, 1999. "Unemployment and Skills in Australia," RBA Research Discussion Papers rdp1999-12, Reserve Bank of Australia.
    8. J. Barkley Rosser, 2003. "A Nobel Prize for Asymmetric Information: The economic contributions of George Akerlof, Michael Spence and Joseph Stiglitz," Review of Political Economy, Taylor & Francis Journals, vol. 15(1), pages 3-21.
    9. Steinar Holden, 2002. "The Costs of Price Stability - Downward Nominal Wage Rigidity in Europe," NBER Working Papers 8865, National Bureau of Economic Research, Inc.
    10. Haltiwanger, John & Waldman, Michael, 1991. "Responders versus Non-responders: A New Perspective on Heterogeneity," Economic Journal, Royal Economic Society, vol. 101(408), pages 1085-1102, September.
    11. G.C. Lim & Robert Dixon & Sarantis Tsiaplias, 2009. "Phillips Curve and the Equilibrium Unemployment Rate," The Economic Record, The Economic Society of Australia, vol. 85(271), pages 371-382, December.
    12. Marika Karanassou & Hector Sala & Dennis J. Snower, 2010. "Phillips Curves And Unemployment Dynamics: A Critique And A Holistic Perspective," Journal of Economic Surveys, Wiley Blackwell, vol. 24(1), pages 1-51, February.
    13. Ahrens, Steffen & Snower, Dennis J., 2014. "Envy, guilt, and the Phillips curve," Journal of Economic Behavior & Organization, Elsevier, vol. 99(C), pages 69-84.
    14. Steinar Holden, 2005. "Wage Formation under Low Inflation," Springer Books, in: Hannu Piekkola & Kenneth Snellman (ed.), Collective Bargaining and Wage Formation, pages 39-57, Springer.
    15. Mr. Kamiar Mohaddes & Mr. Mehdi Raissi, 2014. "Does Inflation Slow Long-Run Growth in India?," IMF Working Papers 2014/222, International Monetary Fund.
    16. Lundborg, Per, 2008. "Wage Redistribution and the Long Run Phillips Curve," Working Paper Series 3/2008, Stockholm University, Swedish Institute for Social Research.
    17. von Hagen, Jurgen & Hofmann, Boris, 2004. "Macroeconomic implications of low inflation in the euro area," The North American Journal of Economics and Finance, Elsevier, vol. 15(1), pages 5-23, March.
    18. Feldmann, Horst, 2015. "Banking system concentration and unemployment in developing countries," Journal of Economics and Business, Elsevier, vol. 77(C), pages 60-78.
    19. Bryan, Michael F. & Palmqvist, Stefan, 2005. "Testing Near-Rationality using Detailed Survey Data," Working Paper Series 183, Sveriges Riksbank (Central Bank of Sweden).
    20. Altenburg, Lutz & Straub, Martin, 2001. "Taxes on labour and unemployment in a shirking model with union bargaining," Labour Economics, Elsevier, vol. 8(6), pages 721-744, December.

    More about this item

    Keywords

    Near-rationality; Non-accelerationist Phillips Curve; Natural rate of unemployment;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:usi:wpaper:587. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Fabrizio Becatti (email available below). General contact details of provider: https://edirc.repec.org/data/desieit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.