Breaks and the Statistical Process of Inflation: The Case of Estimating the ‘Modern’ Long-Run Phillips Curve*

Bill Russell (Lead / Corresponding author), Dooruj Rambaccussing

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Abstract

‘Modern’ theories of the Phillips curve inadvertently imply that inflation is an integrated or near integrated process but this implication is strongly rejected using United States data. Alternatively, if we assume that inflation is a stationary process around a shifting mean (due to changes in monetary policy) then any estimate of long-run relationships in the data will suffer from a ‘small-sample’ problem as there are too few stationary inflation ‘regimes’. Using the extensive literature on identification of structural breaks we identify inflation regimes which are used in turn to estimate with panel data techniques the United States long-run Phillips curve.
Original languageEnglish
Pages (from-to)1455-1475
Number of pages21
JournalEmpirical Economics
Volume56
Issue number5
Early online date9 Jan 2018
DOIs
Publication statusPublished - May 2019

Keywords

  • Inflation
  • Non-stationary data
  • Phillips curve
  • Structural breaks

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