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OUTPUT AND INFLATION IN MODELS OF THE BUSINESS CYCLE WITH NOMINAL RIGIDITIES: FURTHER COUNTERFACTUAL IMPLICATIONS
Article first published online: 30 JUL 2007
DOI: 10.1111/j.1467-9485.2007.00425.x
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How to Cite
Páez-Farrell, J. (2007), OUTPUT AND INFLATION IN MODELS OF THE BUSINESS CYCLE WITH NOMINAL RIGIDITIES: FURTHER COUNTERFACTUAL IMPLICATIONS. Scottish Journal of Political Economy, 54: 475–491. doi: 10.1111/j.1467-9485.2007.00425.x
Publication History
- Issue published online: 30 JUL 2007
- Article first published online: 30 JUL 2007
- Date of receipt of final manuscript: 31 August 2006
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ABSTRACT
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 have been put forward as displaying superior dynamics.