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dc.contributor.authorGottschalk, Janen_US
dc.contributor.authorFritsche, Ulrichen_US
dc.date.accessioned2009-01-28T15:43:02Z-
dc.date.available2009-01-28T15:43:02Z-
dc.date.issued2005en_US
dc.identifier.urihttp://hdl.handle.net/10419/18372-
dc.description.abstractNew-Keynesian macroeconomic models typically assume that any long-run trade-off between inflation and unemployment is ruled out. While this appears to be a reasonable characterization of the US economy, it is less clear that the natural rate hypothesis necessarily holds in a European country like Germany where hysteretic effects may invalidate it. Inspired by the framework developed by Farmer (2000) and Beyer and Farmer (2002), we investigate the long-run relationships between the interest rate, unemployment and inflation in West Germany from the early 1960s up to 2004 using a multivariate cointegration analysis technique. The results point to a structural break in the late 1970s. In the later time period we find for West German data a strong negative correlation between the trend components of inflation and unemployment. We show that this finding contradicts the natural rate hypothesis, introduce a version of the New Keynesian model which allows for some hysteresis and compare the effectiveness of monetary policy in these two models. In general, a policy rule with an aggressive response to a rise in unemployment performs better in a model with hysteretic characteristics than in a model without.en_US
dc.language.isoengen_US
dc.publisherDeutsches Institut für Wirtschaftsforschung (DIW) Berlinen_US
dc.relation.ispartofseriesDIW-Diskussionspapiere 521en_US
dc.subject.jelC32en_US
dc.subject.jelB22en_US
dc.subject.jelE24en_US
dc.subject.ddc330en_US
dc.subject.keywordCointegrationen_US
dc.subject.keywordVector Error CorrectionModelen_US
dc.subject.keywordUnemploymenten_US
dc.subject.keywordPhillips Curveen_US
dc.subject.keywordHysteresisen_US
dc.titleThe New Keynesian Model and the Long-Run Vertical Phillips Curve: Does It Hold for Germany?en_US
dc.typeWorking Paperen_US
dc.identifier.ppn504313746en_US
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungen-
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DIW-Diskussionspapiere

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