Posted: March 10th, 2016

xplain the difference between a traditional backward-looking Phillips curve and the New Keynesian Phillips curve?

Consider a standard baseline New Keynesian model described in “New Perspectives on Monetary Policy, Inflation, and the Business Cycle”, by Jordi Gal´ı.
(a) Explain the difference between a traditional backward-looking Phillips curve and the New Keynesian Phillips curve? Write down the expression for the NKPC and provide some intuition behind it. What are the main criticisims of the NKPC? (20 marks)