The paper extends Woodford’s [Optimizing models with nominal rigidities, Chapter 3 of Interest and prices: foundations of a theory of monetary policy, Princeton University, 2000; unpublished manuscript] analysis of the closed economy Phillips curve to an open economy with both commodity trade and capital mobility. We show that consumption smoothing, which comes with the opening of the capital m...

This paper proposes an econometric evaluation of the New Keynesian Phillips Curve (NKPC) in the euro area, under a particular specification of the adaptive learning hypothesis. The key assumption is that agents’ perceived law of motion is a Vector Autoregressive (VAR) model, whose coefficients are updated by maximum likelihood estimation as the information set increases over time. Each time new...

The New-Keynesian Phillips curve is usually reported to fit the data better when lagged inflation, and therefore backward-looking price setting, is included in the equation. We argue that the same inflation persistence can be generated by letting the shocks in the economy be highly correlated in a model where price setting is purely forward-looking. Previous estimates in the literature are bias...