SFB 303 Discussion Paper No. A - 149
Author: Neumann, Manfred J. M., and Jürgen von Hagen
Title: Properties of the Phillips-curve in a Two-signals World
Abstract: The famous variable-slope property of the short-run Phillips-curve is not a generally valid implication of
rational expectations. Instead it results from assuming that agents are restricted to observing a local market price
as the only source of contemporaneous information. We show that in a more general case of a two-signals world,
where agents observe a local goods price and a global asset price, changes in the variances of aggregate nominal
and real shocks affect the effective output-inflation trade-off by changing the shift properties of the Phillips-
curve instead of its slope. This has implications for empirical tests.
Creation-Date: January 1988
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