Gal and Gertler (1999) developed a hybrid variation of the New Keynesian Phillips curve that relates inflation to real marginal cost, expected future inflation and lagged inflation. GMM estimates of the model suggest that forward looking behavior is highly important; the coefficient on expected...

We construct a measure of Euro area cyclical effficiency, following the approach developed in Galí, Gertler and López-Salido (2002).Our measure -wich we call “the gap”- corresponds to the inverse of price over social marginal cost. Here we present a time series of this gap for the Euro...

This paper reviews the recent literature on monetary policy rules. We exposit the monetary policy design problem within a simple baseline theoretical framework. We then consider the implications of adding various real world complications. Among other things, we show that the optimal policy...

We develop and estimate a structural model of inflation that allows for a fraction of firms that use a backward looking rule to set prices. The model nests the purely forward looking New Keynesian Phillips curve as a particular case. We use measures of marginal costs as the relevant determinant...