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The purpose of this paper is to study the optimal long-run rate of inflation in the presence of a hybrid Phillips curve, which nests a purely backward-looking Phillips curve and the purely forward-looking New Keynesian Phillips curve (NKPC) as special limiting cases.

This paper derives the long-run rate of inflation in a basic New Keynesian (NK) model, characterized by sticky prices and rule-of-thumb behavior by price setters. The monetary authority possesses commitment and its objective function stems from an approximation to the utility of the representative household.

Commitment solution for the monetary authority leads to steady-state outcomes in which inflation, albeit small, is positive. Rising from zero under the purely forward-looking NKPC, the optimal long-run rate of inflation reaches its maximum under the purely backward-looking Phillips curve. In this case, inflation bias arises, while, under the hybrid Phillips curve, positive long-run inflation is associated with an output gain.

This paper serves as a clarification against the misperception that log-linearized models take as given the steady-state inflation rate rather than being capable of determining it. Analysis is sensitive to the basic NK setting, with the assumed rule-of-thumb behavior by price setters and price staggering.

The results are the first to quantify the optimal long-run rate of inflation in a fully microfounded model that nests different Phillips curves.

Studies linking monetary policy to inflation and unemployment rates in the context of the Phillips curve are limited to conventional economics. On the other hand, research related to application of the dual monetary policy is limited to discussion of monetary policy transmission lines, especially in Islamic banking channels. Therefore, this study aims to determine the monetary policy response in implementation of the dual monetary policy to two important indicators in the macro economy, namely, inflation and unemployment. In addition, the study reveals the relevance of the Phillips curve in Indonesia.

The method used is vector auto regression vector autoregression (VAR) with monthly data from February 2005 to October 2016 for the first model and semi-annual data from February 2005 to August 2017 for the second model. Analysis of VAR estimation in this research uses the impulse response function (IRF) to analyze the degree of sensitivity or responsiveness to a shock between variables and the variance decomposition (VD) application to analyze how the proportion of each independent variable’s contribution affects the money supply.

The result shows that monetary policy has responded appropriately to the problems of inflation and unemployment. However, inflation generates a bigger response than unemployment. Bank Indonesia considers the inflation expectations aspect of both conventional and Islamic references. Finally, the concept of the Phillips curve proves to be irrelevant in Indonesia.

The central bank is expected to build a more effective policy for transmission from the monetary sector to the real sector to effectively overcome the problems of inflation and unemployment. Furthermore, Indonesia needs to increase policies to overcome problems on the supply side.

The results of this study provide new insights into application of the dual monetary policy toward inflation and unemployment.

Some structural evidence indicating a substantial degree of inertia in commodity prices in Pakistan within the context of a complete rational expectations macroeconomic model is provided. The evidence also supports the existence of a short‐run Phillips curve for Pakistan for the period 1972(1) to 1981(4). What is more interesting is the existence of a long‐run “trade‐off” between excess demand for labour and inflation despite the fact that inflationary expectations are assumed to be rational.

The recent publication of a sixth edition of Dornbusch and Fischer’s (D&F’s) Macroeconomics will be of interest to many teachers of macro theory. D&F’s text must currently be one of the most widely used intermediate‐level guides to macroeconomics; as the authors themselves tell us, the book has been translated into many languages and is in use around the world “from Canada to Argentina and Australia, all over Europe, in India, Indonesia and Japan, from China and Albania to Russia”. The undogmatic “middle‐of‐the‐road” approach, together with the careful and clear presentation characteristic of this user‐friendly textbook, has won it many friends.

The objective of this study is to assess the impact of financial development (FD) on monetary policy efficiency (MPE) in developed G7 countries in the period 1980–2017, based on data availability.

This study followed a two-step process as follows: (1) using the Monte Carlo simulation based on Taylor curve theory to build the MPE measure and (2) evaluating the effect of FD on MPE by feasible generalized least squares (FGLS) estimation.

The results of this study show that (1) MPE varies over time. Monetary policy appears ineffective during the crisis period and is subject to many impacts of domestic and external shocks. On the contrary, the ability to influence the economy to achieve the central bank's goal tends to increase in the recovery stages, and this is in line with the actual. (2) FD has a negative impact on MPE. Interestingly, when considering the role of component FD indicators, the development of financial markets (FMs) has a negative impact on MPE while the development of financial institutions (FIs) has a positive impact. In particular, the impact of FI on MPE is mainly attributed to the impact of the depth of FI. Meanwhile, the impact of FM on MPE is mainly due to the impact of the efficiency in the FM.

To the author’s knowledge, this is the first study that evaluates the impact of FD on MPE in the context of measuring MPE by using the Taylor curve theory. Results from this study suggest a scientific and practical MPE measure and provide significant policy implications. This paper also offers suggestions for future research.

The Australian unemployment rate has fallen to its lowest level since 1989, and looks likely to fall further, perhaps even reaching the rate of 5 per cent, widely regarded as “full employment”. However, this relatively favourable outcome has been achieved only after a cyclical expansion so long and robust that it has been widely regarded as “miraculous”. It is important, therefore, to consider whether recent reductions in unemployment will be maintained when the current expansion ends, and whether alternative policies could produce stronger and more sustainable growth in employment.

Using recent literature, examines developments in seven macroeconomic schools of thought: orthodox Keynesian, monetarist, new classical, real business cycle theory, new Keynesian, Austrian and post‐Keynesian. Describes all of these and classifies them as orthodox, new or radical. After setting out the differences, discusses the degree of agreement between the schools of thought. Concludes that macroeconomics is constantly evolving, resulting in new disagreements requiring a new consensus.

The purpose of this paper is to contribute to the teaching of undergraduate macroeconomics.

To suggest a roadmap, based on a consumption function, to be used by instructors willing to teach the Lucas Critique subject.

Therefore, this paper proposes a lesson, which consists of three parts, to help undergraduates better understand the subject: (1) a grading exercise to bring the topic closer to students’ lives; (2) a Keynesian and an optimal consumption function, followed by an example based on an unemployment insurance policy; and (3) two optional topics consisting of extensions of the optimal consumption function and some empirical results related to the Lucas Critique.

The Lucas Critique influenced the evolution of research in macroeconomics, but it is not easily grasped in a classroom.

The purpose of this paper is to evaluate the performance of six types of policy rules applied for Indonesia, using monthly data spanning January 1980 to December 2008.

This paper uses deterministic simulations on a small macro model and evaluates the policy rules based on the loss function.

Among six types of policy rules, an inflation forecast‐based rule with contemporaneous output gap (IFBG) is found to be the most efficient rule for Indonesia. The rule suggests that the central bank should react strongly to inflation deviations from the target, react moderately to the output gap and smooth the interest rate. The optimal horizon is 3‐4 quarters. Including the exchange rate in the policy rule causes deterioration in economic performance.

No previous study examines Indonesia employing the same methodology.

This study reinvestigates the validity of the Phillips curve in Nigeria for the period 1980–2020 by considering the asymmetric nexus between unemployment and inflation.

The nonlinear autoregressive distributed lag (NARDL) technique was used to decompose the unemployment variable into two components: tight and loosened labour markets.

The empirical outcome shows that unemployment has a significant negative effect on inflation when the labour market is tight and a weakly negative and significant effect on inflation when the labour market is loose. The study confirms an asymmetric Phillips curve in Nigeria since the positive (tight) unemployment rate exerts a greater effect on inflation than the negative (loosened) unemployment rate.

The findings of this study have important implications for implementing monetary policy in Nigeria.

To the best of the authors’ knowledge, this is the first study to investigate the existence of a nonlinear Phillip curve in Nigeria.