Exploitability as a Specification Test of the Phillips Curve

A. Patrick L. Minford and David A. Peel

No 3612, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Nominal price and wage rigidity renders monetary policy effective over output. However, this effectiveness extends, under widely used overlapping-wage and Calvo-contract Phillips Curves, to planned monetary policy (‘exploitability’) and not merely to policy surprises. We argue that within both frameworks, when agents write optimal nominal contracts, they will not be exploitable by planned monetary policy. We therefore suggest non-exploitability as a specification test for Phillips Curves.

Keywords: Calvo contract; overlapping wages; Phillips curve (search for similar items in EconPapers)
JEL-codes: E24 E32 J41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2002-10
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