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

Novella Maugeri

Department of Economics University of Siena from Department of Economics, University of Siena

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.

Keywords: Near-rationality; Non-accelerationist Phillips Curve; Natural rate of unemployment (search for similar items in EconPapers)
JEL-codes: E24 E31 J41 (search for similar items in EconPapers)
Date: 2010-03
New Economics Papers: this item is included in nep-cba and nep-mac
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Citations: View citations in EconPapers (1)

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