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Some Intranational Evidence On Output-Inflation Trade-Offs, Gregory Hess, Kwanho Shin
Some Intranational Evidence On Output-Inflation Trade-Offs, Gregory Hess, Kwanho Shin
CMC Faculty Publications and Research
In a seminal paper, Robert E. Lucas, Jr. provided the theoretical relationship between aggregate demand and real output based on relative price confusion at the individual market level. Subsequently, an alternative New Keynesian aggregate supply relationship was derived and it was demonstrated that the two theories can be distinguished on the basis of how both the rate of inflation and the volatility of relative prices affect its slope. By emphasizing the first implication of New Keynesian theory, strong evidence was obtained supporting this model using international data. We also concentrate on the second difference between the two theories. We derive …