A Rejoinder on the New Keynesian Phillips Curve in the United States

This paper examines the nexus between money, output and inflation in the United States during the period from 1974 to 2010. The theoretical framework is underpinned by a new Classical–Keynesian synthesis view of inflation, expectations and money growth with the incorporation of a number of neglected areas of contention. The empirical model is based on the error-correction representation of a VAR modelling system and estimated using quarterly time series data. The estimation results reveal full efficiency in private inflationary expectations formation as contained in the Livingston expectations series, although they support the proposition of non-neutrality of money in the long run. The policy implication is that the conduct of monetary policy should attempt to manage not only inflationary expectations but also incorporate the output outlook of private agents.