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4 edition of Phillips curve instability and optimal monetary policy found in the catalog.

Phillips curve instability and optimal monetary policy

Troy Davig

Phillips curve instability and optimal monetary policy

by Troy Davig

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  • 31 Currently reading

Published by Research Division, Federal Reserve Bank of Kansas City in Kansas City [Mo.] .
Written in English


About the Edition

This paper assesses the implications for optimal discretionary monetary policy if the slope of the Phillips curve changes. The paper first derives a "switching" Phillips curve from the optimal pricing decision of a monopolistic firm that faces a changing cost of price adjustment. Two states exists, a state with a high cost of price adjustment that generates a "flat" Phillips curve and a low-cost state that generates a relatively "steep" curve. The second aspect of the paper constructs a utility-based welfare criterion. A novel feature of this criterion is that it has a relative weight on output gap deviations that is state dependent, so it changes with the cost of price adjustment. Optimal monetary policy is computed subject to the switching-Phillips curve under both ad-hoc and utility-based welfare criteria. The utility-based criterion instructs monetary policy to disregard the slope of the Phillips curve and keep its systematic actions constant across different states. This stands in contrast to the prescription coming under the ad-hoc criterion, which advises monetary policy to change its systematic behavior according to the slope of the Phillips curve.

Edition Notes

StatementTroy Davig.
SeriesRWP -- 07-04
ContributionsFederal Reserve Bank of Kansas City. Research Division.
Classifications
LC ClassificationsHB1
The Physical Object
FormatElectronic resource
ID Numbers
Open LibraryOL16370399M
LC Control Number2007619395

Davig, Troy. “Phillips Curve Instability and Optimal Monetary Policy.” Journal of Money, Credit, and Banking, 48(1), – Galí, Jordi. Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework and Its Applications, second Cited by: 1.   From a new VOX post by Michael McLeay and Silvana Tenreyro: “We have long known that the empirical Phillips curve may vary with monetary policy (Lucas ). One common explanation for the Great Inflation of the s is that policymakers mistakenly tried to exploit the prevailing reduced-form Phillips curve, and in so doing caused it to disappear (e.g. Sargent et al. ).

exerting labor effort.1 The Phillips curve is the set of inflation rate-unemployment rate pairs that are steady states. The slope of the Phillips curve and the optimal monetary policy (modeled as a choice of an inflation target) depend on fundamentals of labor and financial markets, on agents’.   Latest Phillips curve articles on Central Banks Policy, Regulation, primarily in the area of financial stability â although some also see climate risks as a poâ ¦ Cleveland Fed paper looks for reasons for flatter Phillips curve. Monetary policy responses to “output deviations” may be key factor, researcher argues.

The Instability of the Phillips Curve. By the mids, the Phillips Curve was a key part of Keynesian Economics. The relationship was seen as a policy menu. A nation could choose low inflation and high unemployment, or high inflation and low unemployment, or anywhere in between. Expansionary fiscal and monetary policy could be used to move up. The Instability of the Phillips Curve. During the s, the Phillips curve was seen as a policy menu. A nation could choose low inflation and high unemployment, or high inflation and low unemployment, or anywhere in between. Fiscal and monetary policy could be used to move up or down the Phillips curve as desired. Then a curious thing happened.


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Phillips curve instability and optimal monetary policy by Troy Davig Download PDF EPUB FB2

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 by: ing optimal monetary policy.

Given these observations, this paper addresses two issues: (1) the derivation of a Phillips curve with a changing slope, driven by changes in the cost of price adjustment and (2) the implications for optimal monetary policy confronting this type of structural by: Inflation inertia.

hybrid Phillips curve and optimal monetary policy rules: Theoretical Model and Empirical Analysis(Chinese Edition) [SUN YIN. GUO KAI. ZHENG ZHONG] on *FREE* shipping on qualifying offers.

Inflation inertia. hybrid Phillips curve and optimal monetary policy rules: Theoretical Model and Empirical Analysis(Chinese Edition)Author: SUN YIN. GUO KAI. ZHENG ZHONG.

Optimal monetary policy is computed subject to the switching-Phillips curve under both ad-hoc and utility-based welfare criteria. The utility-based criterion instructs monetary policy to disregard the slope of the Phillips curve and keep its systematic actions constant across different by: Optimal monetary policy is computed subject to the switching-Phillips curve under both ad-hoc and utility-based welfare : Troy Davig.

Instability in a Phillips curve relation originates from a theoretical model in which monopolistic firms face changing quadratic costs of price adjustment. Deriving the switching-Phillips curve explicitly from the firm’s optimization problem has benefits in terms of constructing a utility-based welfare criterion.

Phillips Curve Instability and Optimal Monetary Policy Troy Davig* J RWP Abstract: This paper assesses the implications for optimal discretionary monetary policy if the slope of the Phillips curve changes. The paper first derives a ‘switching’ Phillips curve from the optimal pricing decision of a monopolistic firm that faces a.

Optimal monetary policy is computed subject to the switching-Phillips curve under both ad-hoc and utility-based welfare criteria.

The utility-based criterion instructs monetary policy to disregard the slope of the Phillips curve and keep its systematic actions constant across different : Troy Davig. The policymaker sees the Phillips curve as the feasible set and will try to use monetary or fiscal policy to choose the level of aggregate demand so that employment is at C.

This is the indifference curve closest to the best outcome of F, which is consistent with the Phillips curve trade-off. The Instability of the Phillips Curve. By the mids, the Phillips Curve was a key part of Keynesian Economics.

The relationship was seen as a policy menu. A nation could choose low inflation and high unemployment, or high inflation and low unemployment, or anywhere in between.

Expansionary fiscal and monetary policy could be used to move up the Phillips curve. Nobay and Peel () use convex Phillips curve model to examine optimal monetary policy under discretion. and nonlinearities in the Phillips curve. She finds some evidence of both instability and. JUAN D.

MONTORO JOSE V. PAZ MIGUEL ROIG University of Valencia Valencia, Spain Active Monetary Policy and Instability in a Phillips Curve System The presence of nonlinearities in a Phillips curve system yields to complex dynamics, i.e., cyclical Cited by: 1.

This paper proposes a novel explanation for the missing disinflation after the Global Financial Crisis: The interplay between financial frictions, the Phillips curve and the optimal response by central banks. The structural framework is a tractable financial accelerator New Keynesian DSGE model that allows for closed-form solutions.

The presence of financial frictions decreases the slope of Author: Philipp Lieberknecht. Optimal monetary policy is computed subject to the switching-Phillips curve under both ad-hoc and utility-based welfare criteria. The utility-based criterion instructs monetary policy to disregard the slope of the Phillips curve and keep its systematic actions constant across different states.

the Phillips curve shaped monetary policy in the s. Sections 3 and 4, respectively, contrast Keynesian and monetarist views on the Phillips curve and the resulting disagreement over the desirability of an activist monetary policy. Section 5 explains the way in which the Samuelson-Solow interpretation of the Phillips curve embodying an.

Optimal Monetary Policy in Open Economies☆ Sylvain Leduc, in Handbook of Monetary Economics, Allocations with nominal rigidities are characterized below by deriving counterparts to the New Keynesian Phillips curve (NKPC) in our open-economy model.

The Instability of the Phillips Curve During the s, the Phillips curve was seen as a policy menu. A nation could choose low inflation and high unemployment, or high inflation and low unemployment, or anywhere in between. Fiscal and monetary policy could be used to.

The Phillips curve has important policy implications. It suggests the extent to which monetary and fiscal policies can be used to control inflation without high levels of unemployment. In other words, it provides a guideline to the authorities about the rate of inflation which can be tolerated with a given level of unemployment.

Chapter 11 analyzes optimal policy in an open-economy version of the forward-looking model. Chapter 12 completes Part 2 with an analysis of the backward-looking Phillips Curve specification of the model considered by Ball (a, b) and others. We look at optimal monetary policy issues in both an open and a closed-economy version of the model.

The Instability of the Phillips Curve During the s, economists viewed the Phillips curve as a policy menu. A nation could choose low inflation and high unemployment, or high inflation and low unemployment, or anywhere in between.

Economies could use fiscal and monetary policy to move up or down the Phillips curve as desired. The Phillips curve is a single-equation economic model, named after William Phillips, describing an inverse relationship between rates of unemployment and corresponding rates of rises in wages that result within an economy.

Stated simply, decreased unemployment, (i.e., increased levels of employment) in an economy will correlate with higher rates of wage rises.Downloadable! There is by now a large consensus in modern monetary policy.

This consensus has been built upon a dynamic general equilibrium model of optimal monetary policy with sticky prices a la Calvo and forward looking behavior. In this paper we extend this standard model by introducing nonlinearity into the Phillips curve.

As the linear Phillips curve may be questioned on theoretical.In summary, we argue that the instability of the Phillips curve seen in U.S.

data from recent decades is exactly what theory predicts when monetary policymakers pursue a dual mandate while changing emphasis on inflation and unemployment over time.