DETERMINING OUTPUT AND INFLATION VARIABILITY: ARE THE PHILLIPS CURVE AND THE MONETARY POLICY REACTION FUNCTION RESPONSIBLE?

This study analyzes the policy parameters in a Taylor monetary policy reaction function and a Phillips curve equation to determine the variability of inflation and output. The theoretical and empirical investigations yield two key results. First, countries with large parameters in the monetary polic...

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Bibliographic Details
Published inEconomic inquiry Vol. 43; no. 2; pp. 439 - 453
Main Author Senda, Takashi
Format Journal Article
LanguageEnglish
Published Oxford, UK Blackwell Publishing Ltd 01.04.2005
Blackwell Publishers Ltd
Western Economic Association
Subjects
Analysis
Economic models
Inflation
Inflation (Finance)
Monetary models
Monetary policy
Output
Phillips curve
Studies
United States
United States
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Summary:This study analyzes the policy parameters in a Taylor monetary policy reaction function and a Phillips curve equation to determine the variability of inflation and output. The theoretical and empirical investigations yield two key results. First, countries with large parameters in the monetary policy reaction function have low and stable inflation. Second, countries with flatter Phillips curves (i.e., those with a higher degree of price stickiness) have larger output variability. This article also examines the determinants of inflation and output variability as well as determinants of the slope of the Phillips curve.(JEL E32, E52)
Bibliography:istex:8C55B78E7BE61D2EE9FACA8E3936CA12F3822419
ArticleID:ECIN439
ark:/67375/WNG-48JW1L73-0
I wish to thank Laurence Ball and Julie Smith for helpful discussions. Two anonymous referees made useful suggestions.
ObjectType-Article-2
SourceType-Scholarly Journals-1
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ISSN:0095-2583
1465-7295
DOI:10.1093/ei/cbi030