Abstract
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 the individual market-level equilibrium relationship for the Lucas model, i.e., the disaggregate supply curve. We estimate the crucial parameters of the relationship between aggregate nominal demand shocks and real output using U.S. intranational state and industry data. We find that the Lucas model omits important New Keynesian features of the data.
| Original language | English |
|---|---|
| Pages (from-to) | 187-203 |
| Number of pages | 17 |
| Journal | Macroeconomic Dynamics |
| Volume | 3 |
| Issue number | 2 |
| Publication status | Published - 1999 Jun 1 |
Fingerprint
Keywords
- Lucas's island model
- New Keynesian theory
ASJC Scopus subject areas
- Economics and Econometrics
Cite this
Some intranational evidence on output-inflation trade-offs. / Hess, Gregory D.; Shin, Kwanho.
In: Macroeconomic Dynamics, Vol. 3, No. 2, 01.06.1999, p. 187-203.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Some intranational evidence on output-inflation trade-offs
AU - Hess, Gregory D.
AU - Shin, Kwanho
PY - 1999/6/1
Y1 - 1999/6/1
N2 - 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 the individual market-level equilibrium relationship for the Lucas model, i.e., the disaggregate supply curve. We estimate the crucial parameters of the relationship between aggregate nominal demand shocks and real output using U.S. intranational state and industry data. We find that the Lucas model omits important New Keynesian features of the data.
AB - 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 the individual market-level equilibrium relationship for the Lucas model, i.e., the disaggregate supply curve. We estimate the crucial parameters of the relationship between aggregate nominal demand shocks and real output using U.S. intranational state and industry data. We find that the Lucas model omits important New Keynesian features of the data.
KW - Lucas's island model
KW - New Keynesian theory
UR - http://www.scopus.com/inward/record.url?scp=0033472195&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=0033472195&partnerID=8YFLogxK
M3 - Article
AN - SCOPUS:0033472195
VL - 3
SP - 187
EP - 203
JO - Macroeconomic Dynamics
JF - Macroeconomic Dynamics
SN - 1365-1005
IS - 2
ER -