Reconsidering the Natural Rate Hypothesis in a New Keynesian Framework

  title={Reconsidering the Natural Rate Hypothesis in a New Keynesian Framework},
  author={Andrew T. Levin and Tack Su Yun},
This paper formulates a stylized New Keynesian model in which each individual firm can select the frequency of its price adjustments, and we demonstrate that the endogeneity of the contract structure has a dramatic impact on the magnitude of the aggregate effects of steady-state inflation. We start by analyzing the exact nonlinear properties of a benchmark economy with exogenous contract duration, and we show that the long-run Phillips curve is downward sloping even for very low levels of… CONTINUE READING
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