Gal and Gertler (1999) developed a hybrid variation of the New Keynesian Phillips curve that relates inflation to real marginal cost, expected future inflation and lagged inflation. GMM estimates of the model suggest that forward looking behavior is highly important; the coefficient on expected...

We develop a reformulated version of the Smets-Wouters (2007) framework that embeds the theory of unemployment proposed in Gal (2011a,b). We estimate the resulting model using postwar U.S. data, while treating the unemployment rate as an additional observable variable. Our approach overcomes the...

The standard New Keynesian model with staggered wage setting is shown to imply a simple dynamic relation between wage inflation and unemployment. Under some assumptions, that relation takes a form similar to that found in empirical applications-starting with the original Phillips (1958)...