The Open Economy Phillips Curve: 'New Keynesian' Theory and Evidence

27 Pages Posted: 4 Dec 2002

See all articles by Prakash Loungani

Prakash Loungani

International Monetary Fund (IMF)

Assaf Razin

Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Chi-Wa Yuen

The University of Hong Kong - School of Economics and Finance

Date Written: October 2002

Abstract

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 evidence on the effect of globalization of the economy, in both the trade and capital transactions, in the Phillips curve. The evidence is consistent with the predictions of the theory.

Keywords: Sacrifice ratios, Phillips curve, new Keynesian Phillips curve, strategic interactions among price setters, imperfect competition in the product market

JEL Classification: E12, F41

Suggested Citation

Loungani, Prakash and Razin, Assaf and Yuen, Chi-Wa, The Open Economy Phillips Curve: 'New Keynesian' Theory and Evidence (October 2002). CEPR Discussion Paper No. 3582. Available at SSRN: https://ssrn.com/abstract=351004

Prakash Loungani (Contact Author)

International Monetary Fund (IMF) ( email )

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Assaf Razin

Tel Aviv University - Eitan Berglas School of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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Centre for Economic Policy Research (CEPR)

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Chi-Wa Yuen

The University of Hong Kong - School of Economics and Finance ( email )

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Kennedy Town
Hong Kong
+8 52 2859 1051 (Phone)
+8 52 7548 1152 (Fax)

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