Theoretical contribution: Elimination of divine coincidence
Empirical contribution:
A richer model of inflationary dynamics;
Oil price inflation is also a forcing variable;
Unemployment can be used in place of the output gap
Ravenna and Walsh (2006):
Theory: If you ever wondered where the 331 stuff came from…
Empirics: GG1999+cost channel, modeled as an interest rate term in the Phillips curve
3 of 4
Additional Papers 2
Gwin and VanHoose (2008):
Do GG1999 study the “right” inflation dynamics?
With PPI instead of the GDP deflator, prices appear to be much more flexible
Questions: Why is this important? Are aggregate data well suited for investigating price-setting dynamics?
Brissimis and Magginas (2008):
Is instrumented ex post inflation a good measure of inflationary expectations?
Inflationary expectations seem very forward-looking with real-time data
4 of 4
Additional Papers 3
Duca and Wu (2009):
Mehra-like AS import and oil supply shocks
Rudebusch-like IS
Main findings: Real interest rate has a stronger effect on output gap and output gap has a stronger effect on inflation (prices are less sticky), once one accounts for periods of high regulation explicitly
Uhlig (2010): Economics and Reality
Possibilities for AS/AD research:
Mehra (2004) vs Brissimis and Magginas (2008)
Brissimis and Magginas (2008) meet Rudebusch (2004)
Different data levels: states, other countries
Other dummy/exogenous variables: what other major changes have possibly affected inflationary or output gap dynamics?