Monetary Policy Under Neoclassical and New-Keynesian Phillips Curves, with an Application to Price Level and Inflation Targeting

17 Pages Posted: 27 Dec 1998

See all articles by Michael T. Kiley

Michael T. Kiley

Board of Governors of the Federal Reserve System

Date Written: 1998

Abstract

This paper compares discretionary monetary policy under two Phillips curves. Previous work uses a Phillips curve consistent with "Neoclassical" models of price adjustment. Sticky price models imply a "New-Keynesian" Phillips curve based on staggered price setting that delivers familiar results on an inflationary bias and inflation contracts. However, the comparison of price level and inflation targeting reveals an output/price stability tradeoff under the New-Keynesian model that does not arise under the Neoclassical specification, illustrating the usefulness of considering the New-Keynesian model. Given the empirical support for the New-Keynesian specification, a stability tradeoff likely exists.

JEL Classification: E52, E31, E58

Suggested Citation

Kiley, Michael T., Monetary Policy Under Neoclassical and New-Keynesian Phillips Curves, with an Application to Price Level and Inflation Targeting (1998). Federal Reserve Board FEDS Paper No. 98-27. Available at SSRN: https://ssrn.com/abstract=138468 or http://dx.doi.org/10.2139/ssrn.138468

Michael T. Kiley (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th and C Streets, NW
Washington, DC 20551
United States
202-452-2448 (Phone)
202-452-5296 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
559
rank
46,977
Abstract Views
1,997
PlumX Metrics