ABSTRACT
The new Keynesian Phillips curve is currently the dominating concept to represent nominal rigidity in macroeconomic theory and the analysis of monetary policy. While its treatment of expected inflation as rational expectations is elegant and theoretically appealing, there is, however, growing awareness that the model is hard to square with the facts. Generally, econometric support is not only lacking for the canonical sticky-price model but also for the hybrid versions that combine forward-looking and backward-looking expectations. A study that has recently worked this out is Rudd and Whelan (2005). At the end the authors arrive at the definite conclusion that the new Keynesian Phillips curve “cannot serve as an adequate approximation to the empirical inflation process” (Rudd and Whelan 2005, p. 18).
