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Inflation expectations and the structure of the New-Keynesian Phillips Curve

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  • Olivier Musy
  • Sebastien Pommier

Abstract

We extend the analysis of Ball (2000) on near-rational expectations. We show that near-rational expectations imply nontrivial additional forecast errors and the degree of error depends on the monetary regime. Moreover, this scheme of expectations does not by itself give support to the New Keynesian Phillips Curve but only to the version built on the staggered prices model of Taylor 1980). The standard model of Calvo 1983 is rejected both under rational expectations and under near-rational expectations in the sense of Ball (2000).

Suggested Citation

  • Olivier Musy & Sebastien Pommier, 2007. "Inflation expectations and the structure of the New-Keynesian Phillips Curve," Applied Economics Letters, Taylor & Francis Journals, vol. 14(9), pages 679-683.
    • Handle: RePEc:taf:apeclt:v:14:y:2007:i:9:p:679-683
    DOI: 10.1080/13504850500425592
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    1. West, Kenneth D, 1996. "Asymptotic Inference about Predictive Ability," Econometrica, Econometric Society, vol. 64(5), pages 1067-1084, September.
    2. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    3. Laurence Ball, 2000. "Near-rationality and inflation in two monetary regimes," Proceedings, Federal Reserve Bank of San Francisco.
    4. repec:nbr:nberre:0126 is not listed on IDEAS
    5. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
    6. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-144, January.
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