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2003•RePEc: Research Papers in EconomicsOpen access

The New Keynesian Phillips Curve: Some Counterfactual Evidence

Juan Páez‐Farrell

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Abstract

New Keynesian models of the business cycle have become the new paradigm of monetary economics, often used for policy analysis. This paper shows that this class of models fail in one crucial respect: they imply a strong negative contemporaneous correlation between inflation and output. Furthermore, this result is robust to parameter values and specification of the inflation equation.

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New Keynesian models of the business cycle have become the new paradigm of monetary economics, often used for policy analysis. This paper shows that this class of models fail in one crucial respect: they imply a strong negative contemporaneous correlation between inflation and output. Furthermore, this result is robust to parameter values and specification of the inflation equation.

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Available abstract

New Keynesian models of the business cycle have become the new paradigm of monetary economics, often used for policy analysis. This paper shows that this class of models fail in one crucial respect: they imply a strong negative contemporaneous correlation between inflation and output. Furthermore, this result is robust to parameter values and specification of the inflation equation.

Key concepts: Phillips curve, New Keynesian economics, Economics, Counterfactual thinking, Inflation (cosmology), Business cycle, Keynesian economics, Monetary policy

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