Output and Inflation in Models of the Business Cycle with Nominal Rigidities: Some Counterfactual Evidence

Juan P ez-Farrell ()
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Juan P ez-Farrell: Cardiff Business School
Authors registered in the RePEc Author Service: Juan Paez-Farrell

No E2006/18, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

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 has been put forward as displaying superior dynamics.

Keywords: nominal rigidities; monetary policy; Phillips Curve; Output; Inflation; Correlation (search for similar items in EconPapers)
JEL-codes: E20 E31 E32 E52 E61 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2006-03
New Economics Papers: this item is included in nep-bec, nep-cba, nep-mac and nep-mon
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Published in Scottish Journal of Political Economy , September 2007 pp. 479-495, Vol. 54, No. 4

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