Journal Article
Policy implications of the New Keynesian Phillips curve
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.
Keywords: Inflation (Finance); Phillips curve;
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Bibliographic Information
Provider: Federal Reserve Bank of Richmond
Part of Series: Economic Quarterly
Publication Date: 2008
Volume: 94
Issue: Fall
Pages: 435-465