During the recovery from global financial crisis, most advanced economies have experienced a surprisingly weak response of wage inflation to decline in unemployment. In this study, we investigate whether downward rigidity (DWR) is source flattening Phillips curve and lack four economies: Japan, euro area, UK US. We estimate nonlinear New Keynesian model with asymmetric adjustment costs natural ...

This paper studies optimal policy in a stylised New Keynesian model that is extended to incorporate imperfect substitutability between short-term and long-term bonds. This simple modification provides a channel through which asset purchases by the policymaker can affect aggregate demand. Because assets are imperfect substitutes, central bank asset purchases that alter the relative supplies of a...

In recent work, Woodford (2001) presents evidence that using real unit labor costs (labor’s share of income) as a driving variable in the new-Keynesian Phillips curve yields a superior fit for inflation relative to a model that uses deterministically detrended real GDP. This evidence leads him to conclude that the output gap—the deviation between actual and potential output—is better captured b...

This paper revisits the New Keynesian framework, theoretically and quantitatively, in an economy with multiple sectors input‐output linkages. Analytical expressions for Phillips curve welfare, derived as a function of primitives, show that slope all sectoral aggregate curves is decreasing intermediate input shares, while productivity fluctuations endogenously generate inflation‐output tradeoff—...