scholarly journals Imperfect rationality and inflationary inertia: a new estimation of the Phillips Curve for Brazil

2004 ◽  
Vol 34 (4) ◽  
pp. 725-776 ◽  
Author(s):  
Angelo Marsiglia Fasolo ◽  
Marcelo Savino Portugal
Keyword(s):  
Monetary Policy ◽  
Kalman Filter ◽  
Phillips Curve ◽  
New Keynesian ◽  
Impulse Response Functions ◽  
Response Functions ◽  
Regime Changes ◽  
Inertial Component ◽  
Imperfect Rationality ◽  
The Relationship

This paper presents some new estimates for the relationship between inflation and unemployment in Brazil based on a new Keynesian hypothesis about the behavior of the economy. Four main hypotheses are tested and sustained throughout the study: i) agents do not have perfect rationality; ii) the imperfection in the agents expectations generating process may be an important factor in explaining the high persistence (inertia) of Brazilian inflation; iii) inflation does have an autonomous inertial component, without linkage to shocks in individual markets; iv) a non-linear relationship between inflation and unemployment is able to provide better explanations for the inflation-unemployment relationship in the Brazilian economy in the last 12 years. While the first two hypotheses are tested using a Markov Switching based model of regime changes, the remaining two are tested in a context of a convex Phillips Curve estimated using the Kalman filter. Despite the methodological and estimation improvements provided in the paper, the impulse-response functions for the monetary policy presented the same properties shown in the literature that uses Brazilian data.

scholarly journals The Godley-Tobin lecture

2020 ◽  
Vol 8 (1) ◽  
pp. 1-20 ◽  
Author(s):  
Robert Rowthorn
Keyword(s):  
Monetary Policy ◽  
Phillips Curve ◽  
New Keynesian ◽  
Monetary Theory ◽  
Unconventional Monetary Policy ◽  
Heterodox Economics ◽  
Mainstream Economics ◽  
Keynesian Economics ◽  
Degree Of Convergence

This paper surveys some of the main developments in macroeconomics since the anti-Keynesian counter-revolution 40 years ago. It covers both mainstream and heterodox economics. Amongst the topics discussed are: New Keynesian economics, Modern Monetary Theory, expansionary fiscal contraction, unconventional monetary policy, the Phillips curve, hysteresis, and heterodox theories of growth and distribution. The conclusion is that Keynesian economics is alive and well, and that there has been a degree of convergence between heterodox and mainstream economics.

scholarly journals Review of Kalman Filter Employment in the NAIRU Estimation

Systems ◽  
2019 ◽  
Vol 7 (3) ◽  
pp. 33
Author(s):  
Fronckova ◽  
Prazak ◽  
Soukal
Keyword(s):  
Kalman Filter ◽  
Economic System ◽  
Phillips Curve ◽  
New Keynesian ◽  
System Stability ◽  
Reduced Form ◽  
Scientific Databases ◽  
System A ◽  
Cyclical Component ◽  
Model Features

The aim of the paper is to provide a recent overview of Kalman filter employment in the non-accelerating inflation rate of unemployment (NAIRU) estimation. The NAIRU plays a key part in an economic system. A certain unemployment rate which is consistent with a stable rate of inflation is one of the conditions for economic system stability. Since the NAIRU cannot be directly observed and measured, it is one of the most fitting problems for the Kalman filter application. The search for original, NAIRU focused and Kalman filter employment studies was performed in three scientific databases: Web of Science, Scopus, and ScienceDirect. A sample of 152 papers was narrowed down to 25 studies, which were described in greater detail regarding the focus, methods, model features, limitations, and other characteristics. A group of studies using a purely statistical approach of decomposing unemployment into a trend and cyclical component was identified. The next group uses the reduced-form approach which is sometimes combined with statistical decomposition. In such cases, the models are usually based on the backward-looking Phillips curve. Nevertheless, the forward-looking, New Keynesian or rarely hybrid New Keynesian variant can also be encountered.

Inclusion of Asset Prices: An Argument for Monetary Policy and the Phillips Curve

2018 ◽  
Vol 64 (3) ◽  
pp. 239-252
Author(s):  
Alexander Mislin
Keyword(s):  
Monetary Policy ◽  
Asset Prices ◽  
Price Index ◽  
Phillips Curve ◽  
House Prices ◽  
Optimization Procedure ◽  
New Keynesian ◽  
Keynesian Model ◽  
Consumer Prices ◽  
Dynamic Stochastic

Abstract This article develops an augmented price index that includes house prices, so that the relationship between inflation and unemployment levels in the traditional Phillips curve can be better represented. This general price index may be considered complementary to the Harmonised Index of Consumer Prices (HICP) and establishes the model-theoretical basis for a new-Keynesian model that derives the conditions for a monetary policy rule in a dynamic stochastic optimization procedure. Based on a simple stochastic differential equation for augmented inflation, we show that the reaction of the central bank depends on the marginal effects on augmented inflation and the output gap of an infinitesimal change in asset prices. This analysis could be interpreted as a way of using asset prices for a general price index, being an adequate method to restore monetary credibility. JEL classifications: E52, E58, G10 Keywords: monetary policy, asset prices, Phillips curve

scholarly journals THE ROLE OF INTEREST RATES AND PROVINCIAL MONETARY AGGREGATE IN MAINTAINING INFLATION IN INDONESIA

2017 ◽  
Vol 19 (3) ◽  
pp. 267-286
Author(s):  
Chandra Utama ◽  
Miryam B.L. Wijaya ◽  
Charvin Lim
Keyword(s):  
Interest Rates ◽  
Money Supply ◽  
Method Of Moments ◽  
Phillips Curve ◽  
Generalized Method Of Moments ◽  
New Keynesian ◽  
Monetary Aggregate ◽  
The Impact ◽  
The Relationship

Inflation is a regional phenomenon hence the use of provincial data might be more appropriateon explaining the relationship between monetary policy and inflation. This paper analyzes the impact of changes in provincial money supply, the policy rate, and the interbank rate on regional inflation, within the framework of Hybrid New Keynesian Phillips Curve (HNKPC). This paper employs Generalized Method of Moments (GMM) on panel data of 32 provinces from 2005-III to 2014-IV. The estimation result shows that provincial monetary aggregate influence inflation significantly only in Sumatera. Furthermore, the policy fate affects the inflation in Sumatera and Kalimantan-Sulawesi. Using the interbank money rate, the result shows this rate also affect the inflation in most of the region except Kalimantan-Sulawesi. These findings show the price-based policy is more significant on affecting the provincial inflation compared to the provincial money supply.

Trend Inflation, Indexation, and Inflation Persistence in the New Keynesian Phillips Curve

2008 ◽  
Vol 98 (5) ◽  
pp. 2101-2126 ◽  
Author(s):  
Timothy Cogley ◽  
Argia M Sbordone
Keyword(s):  
Monetary Policy ◽  
Ad Hoc ◽  
Phillips Curve ◽  
New Keynesian ◽  
Time Varying ◽  
New Keynesian Phillips Curve ◽  
Inflation Persistence ◽  
Long Run ◽  
Trend Inflation ◽  
Forward Looking

Purely forward-looking versions of the New Keynesian Phillips curve (NKPC) generate too little inflation persistence. Some authors add ad hoc backward-looking terms to address this shortcoming. We hypothesize that inflation persistence results mainly from variation in the long-run trend component of inflation, which we attribute to shifts in monetary policy. We derive a version of the NKPC that incorporates a time-varying inflation trend and examine whether it explains the dynamics of inflation. When drift in trend inflation is taken into account, a purely forward-looking version of the model fits the data well, and there is no need for backward-looking components. (JEL E12, E31, E52)

THE REGIONAL ASYMMETRIC RESPONSES TO CENTRAL BANK’S MONETARY POLICY IN PAKISTAN

2017 ◽  
Vol 65 (02) ◽  
pp. 351-364
Author(s):  
NASEEM FARAZ ◽  
ZAINAB IFTIKHAR
Keyword(s):  
Monetary Policy ◽  
Impulse Response Functions ◽  
Response Functions ◽  
Structural Vector Autoregression ◽  
Monetary Policy Shocks ◽  
Limited Evidence ◽  
Svar Model ◽  
Policy Shocks ◽  
National Output ◽  
Structural Vector

Literature on differential impacts of monetary policy across regions discusses several factors which may be responsible for asymmetrical effects of monetary policy. As far as Pakistan is concerned, limited evidence is available for both mechanism and impact of monetary policy. In this study, we examine asymmetries in responses of real output of provinces to central bank’s monetary policy in Pakistan. We also attempt to explore the potential sources of these asymmetries. The Structural Vector Autoregression (SVAR) model is employed to examine each province’s response to unanticipated monetary policy shocks. The generalized impulse response functions from SVAR reveal that monetary policy has varied effects across the provinces. In two regions — Punjab and Sindh — monetary policy shocks cause variations in provincial outputs in similar ways. These responses are also comparable to the response of national output to changes in monetary policy but with considerable differences in magnitudes. While other provinces Khyber Pakhtunkhawa (KPK) and Balochistan show less sensitivity to unanticipated change in monetary policy. The less sensitive regions exhibit dissimilar responses both in timings and magnitudes. These dissimilarities in regional responses draw attention to devise an effective national monetary policy that might consider the cross-provincial differences in responses to central monetary policy in Pakistan.

scholarly journals САВРЕМЕНИ КОНЦЕПТИ ФИЛИПСОВЕ КРИВЕ И СТАБИЛИЗАЦИОНА МАКРОЕКОНОМСКА ПОЛИТИКА

TEME ◽  
2020 ◽  
pp. 519
Author(s):  
Владимир Михајловић ◽  
Гордана Марјановић
Keyword(s):  
Financial Stability ◽  
Inflation Rate ◽  
Phillips Curve ◽  
New Keynesian ◽  
Stabilization Policy ◽  
The Great Recession ◽  
Basic Purpose ◽  
The Subject ◽  
Relationship Of ◽  
The Relationship

The stabilization of economic activity represents the basic purpose of macroeconomic policy. In the last few years, the achievement of price stability, or the relatively low and stable inflation rate, has been imposed as the policy’s main goal, in accordance with the recommendations of the so-called New consensus macroeconomics. In line with that, the identification of variables, which determine the inflation rate and cause its changes, is crucial. From its occurrence, the relationship of the Phillips curve provided an explanation of the inflation dynamics based on the movement of different factors, depending on the variant of the curve observed. Hence, the subject of the paper is the presentation and evaluation of the contemporary concepts of the Phillips curve in the context of the application of the efficient stabilization policy. The main objective of the paper is to reconsider the concept’s validity, especially in the conditions of serious economic disorders, such as the Great Recession. The applied analysis indicates that the dominant New Keynesian concept of the Phillips curve can serve for the successful conducting of economic policy, if it is supplemented with the variables of fiscal policy and financial stability policy.

scholarly journals KREDIBILITAS BANK SENTRAL DAN PERSISTENSI INFLASI DI INDONESIA

2017 ◽  
Vol 17 (2) ◽  
pp. 155
Author(s):  
Rachman Hakim ◽  
Munawar Ismail ◽  
Arif Hoetoro
Keyword(s):  
Central Bank ◽  
Inflation Targeting ◽  
Phillips Curve ◽  
New Keynesian ◽  
New Keynesian Phillips Curve ◽  
Inflation Persistence ◽  
The Impact ◽  
The Relationship

The relationship between the credibility of the central bank and the persistence of inflation is still ambigous as this information is crucial in setting the appropriate policy for combating an inflation problem. The objective of this paper is to measure the rate of inflation persistence and to examine the importance of the credibility of the bank central on the persistence of inflation in Indonesia by using the New Keynesian Phillips Curve Hybrid. It is found that the persistence of inflation in the period of full - fledged Inflation Targeting (2006:1-2012:3) lower when compared with the period of Inflation Targeting Lite (2000:1-2005:4). Meanwhile, the credibility of the central bank is significantly influencing the persistence of inflation only when Indonesia was implementing the Full-Fledged Inflation Targeting. When Indonesia was applying the Inflation Targeting Lite, the impact of bank central credibility on persitence inflation was not significant. These findings indicate that the behavior of inflation in Indonesia was backward looking during the periode of Inflation Targeting Lite and becoming forwardlooking after adopting the Full-Fledged Inflation Targeting Policy. This change is related to the increased credibility of the central bank in the full - fledged Inflation Targeting period.

Α Model of Debt Deflation and the Phillips Curve: Implications for Business Cycles and the Balance Sheet Channel of Monetary Policy / Schulden-Deflation und die Phillips-Kurve: Implikationen für Konjunkturzyklen und den Bilanzkanal der Geldpolitik

2000 ◽  
Vol 220 (4) ◽  
Author(s):  
Lutz Arnold
Keyword(s):  
Monetary Policy ◽  
Business Cycles ◽  
Phillips Curve ◽  
Balance Sheet ◽  
New Keynesian ◽  
Inflation Expectations ◽  
Natural Rate ◽  
Net Worth ◽  
Balance Sheet Channel ◽  
Debt Deflation

SummaryNew Keynesian economics stresses the positive link between firms’ net worth, on the one hand, and the equilibrium level of credit granted and aggregate employment, on the other hand. The present paper argues that once money is introduced and adaptive inflation expectations are assumed, an accelerationist Phillips curve emerges: because of debt deflation, an increase in the rate of inflation reduces firms' real debt burden; because of the negative link between real debt and employment, unemployment falls. The natural rate of unemployment is the rate that occurs when inflation is constant. Frisch has proposed modeling business cycles by means of stochastic linear second-order difference equations which display damped oscillations in the absence of stochastic impulses. The New Keynesian model with adaptive expectations expounded here gives rise to business cycles in Frisch’s sense. This can be shown by applying Laidler’s result, derived in a different set-up, that the interaction between an accelerationist Phillips curve and the quantity theory of money yields Frisch-type cycles. Moreover, the model presented sheds some light on the working of the balance sheet channel of monetary policy.

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