Monetary Policy and the Informational Implications of the Phillips Curve

In this paper I examine optimal monetary policy and the informational implications of the Phillips curve in a stochastic macroeconomic model. It is assumed that wages are not only indexed to the price level, but respond to the state of the labour market as well. If information about current disturbances is conveyed only through market prices, it turns out that wages have independent informational content, over and above the informational content of other aggregate prices. The optimal policy in this model implies reactions to changes in both wages and the aggregate price level, as, unlike the commonly used model of Gray and Fischer, wages and prices are onlv partially correlated signals about the unobserved disturbances. The paper also discusses an extension to an open economy and the relation between exchange rate policy and wages.

Economica

Full Paper PDF

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s