On Phase Shifts in a New Keynesian Model Economy

Joseph Haslag () and Xue Li
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Joseph Haslag: Department of Economics, University of Missouri-Columbia, https://economics.missouri.edu/people/haslag
Xue Li: Institute of Chinese Financial Studies & Collaborative Innovation Center of Financial Security, Southwestern University of Finance and Economics

No 1703, Working Papers from Department of Economics, University of Missouri

Abstract: The purpose of this paper is focus directly on the phase shift. For one thing, we ask whether a sticky-price model economy can account for both countercyclical prices and procyclical inflation. We present findings in which the price level is countercyclical and the inflation rate is procyclical. We proceed to use the model economy as an identification mechanism. What set of individual shocks are sufficient to account for the phase shift? That set is empty. Next, we ask what set of shocks are necessary to account for the phase shift. This set contains technology shocks and monetary policy shocks. The results are important as a building block. We infer that price stickiness is an important model feature; without price stickiness, we are in the real business cycle economies that Cooley and Hansen studied. But, it raises further questions. For instance, is price stickiness of the Rotemberg form—the one used here—necessary to explain the phase shift?

Keywords: phase shift; countercyclical price; procyclical inflation; necessary and sufficient shocks; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: E31 E32 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2017-02
New Economics Papers: this item is included in nep-mac
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Related works:
Journal Article: ON PHASE SHIFTS IN A NEW KEYNESIAN MODEL ECONOMY (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:umc:wpaper:1703

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