Keynesian Phillips Curves Imply for Price-Level Targeting?

• Main Authors: Robert Dittmar, William T. Gavin
• Other Authors: The Pennsylvania State University CiteSeerX Archives
• Format: Text
• Language: English
• Subjects: Lucas Island; McCallum
• Online Access: http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.202.8217; http://research.stlouisfed.org/publications/review/00/03/0003rd.pdf

Would we be better off if the Fe d e ral Re s e r ve had an inflation ta rget or a price-level ta rget? In a p revious paper, Dittmar et al. (1999a) used a simple Phillips Curve model and evidence about the pers i s-tence in output gaps to show that a price-leve l- ta rg e t-ing regime would likely result in a better infla t i o n-output variability tradeoff than an infla t i o n- ta rg e t i n g re g i m e. That was an extension of work by Sve n s s o n (1999). The Phillips Curve specification was consistent with one derived from a Lucas Island model with persistent supply shocks or a Fischer (1977) wa g e- c o n t racting model. McCallum (1994) re f e rs to this as a Neoclassical Phillips Curve because it is consistent with the Natural Rate Hypothesis (NRH)— m o n e tary policy cannot keep output permanently