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====New Keynesian Phillips curve==== The New Keynesian Phillips curve was originally derived by Roberts in 1995,<ref>{{cite journal |last=Roberts |first=John M. |year=1995 |title=New Keynesian Economics and the Phillips Curve |journal=[[Journal of Money, Credit and Banking]] |volume=27 |issue=4 |pages=975β984 |jstor=2077783 |doi=10.2307/2077783}}</ref> and has since been used in most state-of-the-art New Keynesian DSGE models.<ref>{{cite book |last=Romer |first=David |year=2012 |chapter=Dynamic Stochastic General Equilibrium Models of Fluctuation |title=Advanced Macroeconomics |publisher=McGraw-Hill Irwin |location=New York |pages=312β364 |isbn=978-0-07-351137-5 }}</ref> The new Keynesian Phillips curve says that this period's inflation depends on current output and the expectations of next period's inflation. The curve is derived from the dynamic Calvo model of pricing and in mathematical terms is: <math display="block">\pi_{t} = \beta E_{t}[\pi_{t+1}] + \kappa y_{t}</math> The current period {{mvar|t}} expectations of next period's inflation are incorporated as <math>\beta E_{t}[\pi_{t+1}]</math>, where <math>\beta</math> is the discount factor. The constant <math>\kappa</math> captures the response of inflation to output, and is largely determined by the probability of changing price in any period, which is <math>h</math>: <math display="block">\kappa = \frac{h[1-(1-h)\beta]}{1-h}\gamma</math>. The less rigid nominal prices are (the higher is <math>h</math>), the greater the effect of output on current inflation.
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