Discussion Paper Details

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Title: Keynesian Economics without the Phillips Curve

Author(s): Roger E A Farmer

Publication Date: September 2017

Keyword(s): Indeterminacy, Keynesian economics and money

Programme Area(s): Monetary Economics and Fluctuations

Abstract: 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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Bibliographic Reference

Farmer, R. 2017. 'Keynesian Economics without the Phillips Curve'. London, Centre for Economic Policy Research.