Traditional Versus New Keynesian Phillips Curves: Evidence From Output Effects
by International Journal Of Central Banking
2021-01-03 20:23:42
Traditional Versus New Keynesian Phillips Curves: Evidence From Output Effects
by International Journal Of Central Banking
2021-01-03 20:23:42
We identify a crucial difference between the backward-ooking and forward-looking Phillips curve concerning the real output effects of monetary policy shocks. The backward-ooking Phillips curve predicts a strict intertemporal trade-off in the case of ...
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We identify a crucial difference between the backward-ooking and forward-looking Phillips curve concerning the real output effects of monetary policy shocks. The backward-ooking Phillips curve predicts a strict intertemporal trade-off in the case of monetary shocks: a positive short-run response of output is followed by a period in which output is below baseline and the cumulative output effect is exactly zero. In contrast, the forward-looking model implies a positive cumulative output effect. The empirical evidence on the cumulated output effects of money is consistent with the forward-looking model. We also use this method to determine the degree of forward-looking price setting.
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