Nonlinear Phillips Curves, Complex Dynamics and Monetary Policy in a Keynesian Macro Model

Carl Chiarella (), Peter Flaschel, G. Gong and Willi Semmler ()
Additional contact information
Peter Flaschel: Department of Economics, University of Bielefeld

No 120, Working Paper Series from School of Finance and Economics, University of Technology, Sydney

Abstract: In the framework of a Keynesian monetary macro model we study implications of kinked Phillips curves and alternative monetary policy rules. As alternative monetary policy rules we consider monetary growth targeting and interest rate targeting (the Taylor rule). Our monetary macro model exhibits: asset market clearing, disequilibrium in product and labor markets, sluggish price and quantity adjustments, two Phillips-Curves for wage and price dynamics, and a combination of medium-run adaptive and short-run forward looking expectations. Simulations of the model with our estimated parameters reveal global instability of its steady state. We show that monetary policy can stabilize the dynamics to some extent and that, in addition, an institutionally given kink in the money wage Phillips-Curve (downwardly rigid wages) represents a powerful mechanism for getting bounded, more or less irregular fluctuations in the place of purely explosive ones. The resulting fluctuations can be reduced in their size by choosing the parameters of monetary policy within a certain corridor, the exact position of which may however be very uncertain.

Keywords: feedback channels; instability; monetary policy; wage floors; fluctuating growth; complex dynamics (search for similar items in EconPapers)
Date: 2002-10-01
View list of references View citations in EconPapers

Downloads: (external link)
http://www.business.uts.edu.au/finance/research/wpapers/wp120.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:uts:wpaper:120

Access Statistics for this paper

More papers in Working Paper Series from School of Finance and Economics, University of Technology, Sydney
Address: PO Box 123, Broadway, NSW 2007, Australia
Contact information at EDIRC.
Series data maintained by Duncan Ford ().