Phillips Curve Instability and Optimal Monetary Policy

Troy Davig

Journal of Money, Credit and Banking, 2016, vol. 48, issue 1, 233-246

Abstract: Empirical evidence suggests the Phillips curve has flattened over the past few decades. To capture this feature of the data, I develop a framework where firms face a changing cost of price adjustment, which produces a Phillips curve with a slope coefficient that varies over time. To evaluate the implications for monetary policy, I construct the utility‐based welfare criterion where the relative weight on output gap deviations changes synchronously with the slope of the Phillips curve. The systematic component of the rule that implements optimal policy is constant under discretion and commitment.

Date: 2016
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https://doi.org/10.1111/jmcb.12296

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Working Paper: Phillips curve instability and optimal monetary policy (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:48:y:2016:i:1:p:233-246

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