Inflation expectations and the structure of the New-Keynesian Phillips Curve

Olivier Musy and Sébastien Pommier ()

Applied Economics Letters, 2007, vol. 14, issue 9, 679-683

Abstract: We extend the analysis of Ball (2000) on near-rational expectations. We show that near-rational expectations imply nontrivial additional forecast errors and the degree of error depends on the monetary regime. Moreover, this scheme of expectations does not by itself give support to the New Keynesian Phillips Curve but only to the version built on the staggered prices model of Taylor 1980). The standard model of Calvo 1983 is rejected both under rational expectations and under near-rational expectations in the sense of Ball (2000).

Date: 2007
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Working Paper: Inflation expectations and the structure of the New-Keynesian Phillips Curve (2007)
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DOI: 10.1080/13504850500425592

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