Working Paper: CEPR ID: DP4295
Authors: Assaf Razin
Abstract: The New-Keynesian aggregate supply derives from micro-foundations an inflation-dynamics model very much like the tradition in the monetary literature. Inflation is primarily affected by: (i) economic slack; (ii) expectations; (iii) supply shocks; and (iv) inflation persistence. This Paper extends the New Keynesian aggregate supply relationship to include also fluctuations in potential output, as an additional determinant of the relationship. Implications for monetary rules and to the estimation of the Phillips curve are pointed out.
Keywords: New-Keynesian Phillips Curve; Potential Output; Taylor Rules
JEL Codes: E10; E12; E60
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Economic slack, expectations, supply shocks, and inflation persistence (E31) | inflation (E31) |
| Fluctuations in potential output (E32) | inflation surprises (E31) |
| inflation surprises (E31) | inflation (E31) |