The Phillips Curve and a Micro-foundation of Trend Inflation

Taiji Harashima

MPRA Paper from University Library of Munich, Germany

Abstract: The hybrid New Keynesian Phillips curve has been criticized for lacking a micro-foundation. In this paper, an alternative purely forward-looking model of the Phillips curve is constructed on the basis of a micro-foundation of trend inflation. In addition, another source of output gaps other than frictions―a Nash equilibrium of a Pareto inefficient path―is considered. The model indicates that the role of frictions has been overestimated and that frictions are less important than previously have been thought. The conventional monetary policy of utilizing frictions cannot necessarily stabilize inflation. In contrast, the monetary policy of controlling the government’s preference is very effective. A problem is that the effects of both types of monetary policy are not distinguishable.

Keywords: Trend inflation; inflation persistence; central bank independence; The New Keynesian Phillips curve; the fiscal theory of the price level (search for similar items in EconPapers)
JEL-codes: E31 E58 E63 (search for similar items in EconPapers)
Date: 2013-11-08
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: THE PHILLIPS CURVE AND A MICRO-FOUNDATION OF TREND INFLATION (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:51305

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