Monetary Policy under Neoclassical and New-Keynesian Phillips Curves, with an211 Application to Price Level and Inflation Targeting

摘要

This paper compares discretionary monetary policy under two Phillips curves.211u001ePrevious work uses a Phillips curve consistent with 'Neoclassical' models of 211u001eprice adjustment. Sticky price models imply a 'New-Keynesian' Phillips curve 211u001ebased on staggered price setting that delivers familiar results on an 211u001einflationary bias and inflation contracts. However, the comparison of price level 211u001eand inflation targeting reveals an output/price stability tradeoff under the New-211u001eKeynesian model that does not arise under the Neoclassical specification, 211u001eillustrating the usefulness of considering the New-Keynesian model. Given the 211u001eempirical support for the New-Keynesian specification, a stability tradeoff 211u001elikely exists.