Keynesian economics without the Phillips curve

Roger Farmer and Giovanni Nicolò

Journal of Economic Dynamics and Control, 2018, vol. 89, issue C, 137-150

Abstract: We extend Farmer’s 2012b Monetary (FM) model in three ways. First, we derive an analog of the Taylor Principle and we show that it fails in U.S. data. Second, we use the fact that the model displays dynamic indeterminacy to explain the real effects of nominal shocks. Third, we use the fact the model displays steady-state indeterminacy to explain the persistence of unemployment. We show that the FM model outperforms the New-Keynesian model and we argue that its superior performance arises from the fact that the reduced form of the FM model is a VECM as opposed to a VAR.

Keywords: Phillips curve; Indeterminacy; Taylor principle (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (40)

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Working Paper: Keynesian Economics without the Phillips Curve (2017)
Working Paper: Keynesian Economics without the Phillips Curve (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:89:y:2018:i:c:p:137-150

DOI: 10.1016/j.jedc.2018.01.012

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