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The New Keynesian Phillips Curve with Myopic Agents

Andreas Orland () and Michael Roos ()

No 281, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: Empirical estimations of the New Keynesian Phillips curve support hybrid versions with a positive weight on lagged infl ation and a weight less than one on expected inflation. We argue that myopic price setting of some agents explains the low weight on expected inflation. The lagged term can be explained by trend extrapolation if information about the future is costly. In a laboratory experiment we implement the Calvo (1983) microfoundations of the Phillips curve. Both of our hypotheses are supported by the experimental data. About half of the subjects set optimal Calvo prices while about a third is myopic.

Keywords: Hybrid Phillips curve; experimental economics; myopia; behavioral macroeconomics; Hybrid Phillips curve; experimental economics; myopia; behavioral macroeconomics (search for similar items in EconPapers)
JEL-codes: C91 D92 E52 (search for similar items in EconPapers)
Date: 2011
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Journal Article: The New Keynesian Phillips curve with myopic agents (2013) Downloads
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