Working Paper: CEPR ID: DP3582
Authors: Prakash Loungani; Assaf Razin; Chiwa Yuen
Abstract: The Paper derives an open economy New-Keynesian Phillips curve. The Phillips curve depends on growth in the domestic economy excess capacity, differential growth between foreign output and domestic output, and on the surprise depreciation of the real exchange rate. The Paper provides new evidence on the effect of globalization of the economy, in both the trade and capital transactions, in the Phillips curve. The evidence is consistent with the predictions of the theory.
Keywords: Imperfect competition in the product market; New-Keynesian Phillips curve; Phillips curve; Sacrifice ratios; Strategic interactions among price setters
JEL Codes: E12; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| growth in the domestic economy (O51) | open economy Phillips curve (F41) |
| excess capacity (D24) | open economy Phillips curve (F41) |
| differential growth between foreign output and domestic output (F29) | open economy Phillips curve (F41) |
| surprise depreciation of the real exchange rate (F31) | open economy Phillips curve (F41) |