Traditional versus New Keynesian Phillips Curves: Evidence from Output Effects

Werner Roeger and Bernhard Herz
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Werner Roeger: European Commission

International Journal of Central Banking, 2012, vol. 8, issue 1, 87-109

Abstract: We identify a crucial difference between the backwardlooking and forward-looking Phillips curve concerning the real output effects of monetary policy shocks. The backwardlooking Phillips curve predicts a strict intertemporal trade-off in the case of monetary shocks: a positive short-run response of output is followed by a period in which output is below baseline and the cumulative output effect is exactly zero. In contrast, the forward-looking model implies a positive cumulative output effect. The empirical evidence on the cumulated output effects of money is consistent with the forward-looking model. We also use this method to determine the degree of forward-looking price setting. JEL Codes

JEL-codes: E31 E32 E40 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (9)

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