Why is inflation so much lower and at the same time more stable in developed economies in the 1990s, compared with the 1970s? This paper suggests that the United Kingdom, United States and other countries may have escaped from a volatile inflation equilibrium. Our argument builds on the story...

The Paper extends Woodford’s (2000) analysis of the closed economy Phillips curve to an open economy with both commodity trade and capital mobility. We show that consumption smoothing, which comes with the opening of the capital market, raises the degree of strategic complementarity among...

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...

This paper investigates the sources of the widely noticed reduction in the volatility of American business cycles since the mid 1980s. Our analysis of reduced volatility emphasizes the sharp decline in the standard deviation of changes in real GDP, of the output gap, and of the inflation rate....

This paper models Chinese inflation using an output gap Phillips curve. Inflation modelling for the world’s sixth largest economy is a still under-researched topic. We estimate a partially forward-looking Phillips curve as well as traditional backward-looking Phillips curves. Using quarterly...

This paper presents an investigation of the empirical significance of the Lucas Critique for the Phillips Curve. The investigation is carried out with annual historical time series for the United Kingdom (1857-1987) and the United States (1892-1987). The results, for two different models of the...

The evolution of unemployment in West Germany and the United States stands in sharp contrast, with German unemployment much lower from 1960 to the early 1970s, but substantially higher from 1984 to 1988. This paper provides a framework for examining the relationship between inflation and...

In this paper I examine optimal monetary policy and the informational implications of the Phillips curve in a stochastic model of a small open economy. It is assumed that the economy produces both traded and non-traded goods, that capital mobility is perfect and that the economy faces a variety...

The Paper highlights one critical difference between Europe and the US regarding the Phillips curve: the behaviour of prices. While they are quickly restored to an equilibrium level in the US, European prices are driven by highly counter-cyclical mark-ups. In bad times, European firms manage to...

Nominal price and wage rigidity renders monetary policy effective over output. However, this effectiveness extends, under widely used overlapping-wage and Calvo-contract Phillips Curves, to planned monetary policy (‘exploitability’) and not merely to policy surprises. We argue that within...