Exploitability as a Specification Test of the Phillips Curve

9 Pages Posted: 29 Nov 2002

See all articles by Patrick Minford

Patrick Minford

Cardiff University Business School; Centre for Economic Policy Research (CEPR)

David A. Peel

Lancaster University - Management School

Date Written: October 2002

Abstract

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 both frameworks, when agents write optimal nominal contracts, they will not be exploitable by planned monetary policy. We therefore suggest non-exploitability as a specification test for Phillips Curves.

Keywords: Phillips Curve, Calvo contract, overlapping wages

JEL Classification: E24, E32, J41

Suggested Citation

Minford, Patrick and Peel, David Alan, Exploitability as a Specification Test of the Phillips Curve (October 2002). CEPR Discussion Paper No. 3612. Available at SSRN: https://ssrn.com/abstract=356400

Patrick Minford (Contact Author)

Cardiff University Business School ( email )

Aberconway Building
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+44 29 2087 5728 (Phone)
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Centre for Economic Policy Research (CEPR)

London
United Kingdom

David Alan Peel

Lancaster University - Management School ( email )

Bailrigg
Lancaster, LA1 4YX
United Kingdom
+44 (0)1524 593590 (Phone)
+44 (0)1524 594244 (Fax)

HOME PAGE: http://www.lancs.ac.uk/staff/peeld/

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