Policy Implications of the New Keynesian Phillips Curve

FRB Richmond Economic Quarterly, Vol. 94, No. 4, Fall 2008, pp. 435-465

31 Pages Posted: 11 Dec 2012

See all articles by Stephanie Schmitt-Grohé

Stephanie Schmitt-Grohé

Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Martín Uribe

Columbia University - Graduate School of Arts and Sciences - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: 2008

Abstract

This article surveys recent advancements in the theory of optimal monetary policy in models with a New Keynesian Phillips curve. It identifies four policy implications. First, near price stability is optimal. Second, simple interest rate feedback rules that respond aggressively to price inflation deliver near-optimal equilibrium allocations. Third, interest rate rules that respond to deviations of output from trend may carry significant welfare costs. Fourth, the zero bound on nominal interest rates does not appear to be a significant obstacle for the actual implementation of low and stable inflation.

Suggested Citation

Schmitt-Grohe, Stephanie and Uribe, Martin, Policy Implications of the New Keynesian Phillips Curve (2008). FRB Richmond Economic Quarterly, Vol. 94, No. 4, Fall 2008, pp. 435-465, Available at SSRN: https://ssrn.com/abstract=2187865

Stephanie Schmitt-Grohe (Contact Author)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

National Bureau of Economic Research (NBER)

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Martin Uribe

Columbia University - Graduate School of Arts and Sciences - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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United States

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