Explain Jordi Galí's New Keynesian Phillips curve.
The New Keynesian Phillips curve, as developed and analyzed in my work, posits that inflation is driven by forward-looking expectations and the deviation of output from its potential level. Unlike simpler versions, it incorporates microeconomic foundations derived from firms' optimizing behavior under monopolistic competition and price-setting constraints. This framework allows for a richer understanding of how monetary policy, by influencing expectations and the output gap, can impact inflation.
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