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This paper examines the impact of a persistent shock to the growth rate of total factor productivity in a New Keynesian model in which the central bank does not observe the shock. The authors then investigate the performance of alternative policy rules in such an incomplete information environment. While some rules perform better than others, the a...
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Context 1
... more data become available, the incoming information is used to refine estimates of the trend. For example, Figure 1 compares the 2011 estimate of potential GDP as measured by the CBO with its own 2007 estimate. Slow growth during the current recovery has led the CBO to lower its estimate of potential GDP. ...
Context 2
... output gap is measured as the log difference between actual and potential output. Orphanides and van Norden (2002) show that revisions to actual output have a small effect on measured output gaps compared with the effect generated by revisions to potential output. Revisions to potential output for any particular quarter are so large because all statistical meth- ods used to measure it rely on data both before and after the quarter in question. In real time, however, the policymaker has only past data available to measure potential output. As more data become available, the incoming information is used to refine estimates of the trend. For example, Figure 1 compares the 2011 estimate of potential GDP as measured by the CBO with its own 2007 estimate. Slow growth during the current recovery has led the CBO to lower its estimate of potential GDP. As a result, the estimate for 2011:Q2 potential GDP has fallen by about 2.7 percent since the beginning of the mortgage debt ...
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Citations
... Few works have addressed the effects of productivity growth on the inflation rate in the short run. Some of the few examples in the recent international literature are Ball and Moffitt (2001), Dew-Becker and Gordon (2005), Ambrocio and Jang (2009), Galvin et al. (2012) and more recently Mewael & Tesfaselassie (2018). However, these works generally use a labor productivity meaurement rather than total factor productivity (TFP), the latter being more wide-ranging than the former for estimating effects on inflation. ...
Although there is a considerable amount of literature on applied Phillips Curves and Total Factor Productivity (TFP) for Brazil, the related works have not empirically addressed the effects of the latter on consumer inflation. Thus, our work provided evidence to bridge this gap. Through estimates from different New Keynesian Phillips Curves, and including TFP measures, we found robust impacts of productivity gains on the inflation rate of the Brazilian economy, suggesting an improvement of the trade-off between inflation and unemployment. Furthermore, we found strong evidence indicating that unemployment rate deviations are a better proxy for economic activity, when compared with output gaps, as a way to estimate New Keynesian Phillips curves.
