Question

To what extent, if at all, are new Keynesian Phillips curves such as those discussed in...

To what extent, if at all, are new Keynesian Phillips curves such as those discussed in Mankiw (2001) an improvement upon previous models?

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Answer #1

The new Keynesian Phillips curve also accepts that there might be a trade-off between unemployment and inflation over the short run. The Marginal productivity keeps declining while the wage rate does not change, so Marginal cost rises when the output level is increased.

New Keynesian do not hold a view like traditional Keynesians who say that there is no trade-off over the short run. Further, new Keynesian do not see such trade-off permanent. The trade-off is not witnessed in the long run. The expectations play a critical role over the long run.

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