Discussion paper

DP12298 Keynesian Economics without the Phillips Curve

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.


Farmer, R (2017), ‘DP12298 Keynesian Economics without the Phillips Curve‘, CEPR Discussion Paper No. 12298. CEPR Press, Paris & London. https://cepr.org/publications/dp12298