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Keynesian Economics without the Phillips Curve

Roger E.A. Farmer, Giovanni Nicolò

NBER Working Paper No. 23837
Issued in September 2017
NBER Program(s):Economic Fluctuations and Growth Program, Monetary Economics Program

We extend Farmer's (2012b) Monetary (FM) Model in three ways. First, we derive an analog of the Taylor Principle and we show that it fails in U.S. data. Second, we use the fact that the model displays dynamic indeterminacy to explain the real effects of nominal shocks. Third, we use the fact the model displays steady-state indeterminacy to explain the persistence of unemployment. We show that the FM model outperforms the NK model and we argue that its superior performance arises from the fact that the reduced form of the FM model is a VECM as opposed to a VAR.

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Document Object Identifier (DOI): 10.3386/w23837

Published: Roger E.A. Farmer & Giovanni Nicolò, 2018. "Keynesian Economics Without the Phillips Curve," Journal of Economic Dynamics and Control, . citation courtesy of

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