Breaks and the Statistical Process of Inflation

The Case of the 'Modern' Phillips Curve

Bill Russell (Lead / Corresponding author), Dooruj Rambaccussing

    Research output: Working paper

    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. However, 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 will suffer from a ‘small-sample’ problem
    as there are too few inflation ‘regimes’ where the data are stationary. We offer
    a ‘4-stage’ solution to this problem and applying this solution to United States
    data we estimate a significant negative sloping non-linear long-run Phillips
    curve.
    Original languageEnglish
    Place of PublicationDundee
    PublisherUniversity of Dundee, Department of Economic Studies
    Number of pages31
    Publication statusPublished - 27 Feb 2016

    Publication series

    NameDundee Discussion Papers in Economics
    PublisherUniversity of Dundee, Department of Economic Studies
    No.294
    ISSN (Print)1473-236X

    Fingerprint

    Phillips curve
    Inflation
    Integrated process
    Long-run relationship
    Monetary policy
    Small sample

    Keywords

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

    Cite this

    Russell, B., & Rambaccussing, D. (2016). Breaks and the Statistical Process of Inflation: The Case of the 'Modern' Phillips Curve. (Dundee Discussion Papers in Economics; No. 294). Dundee: University of Dundee, Department of Economic Studies .
    Russell, Bill ; Rambaccussing, Dooruj. / Breaks and the Statistical Process of Inflation : The Case of the 'Modern' Phillips Curve. Dundee : University of Dundee, Department of Economic Studies , 2016. (Dundee Discussion Papers in Economics; 294).
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    Russell, B & Rambaccussing, D 2016 'Breaks and the Statistical Process of Inflation: The Case of the 'Modern' Phillips Curve' Dundee Discussion Papers in Economics, no. 294, University of Dundee, Department of Economic Studies , Dundee.

    Breaks and the Statistical Process of Inflation : The Case of the 'Modern' Phillips Curve. / Russell, Bill (Lead / Corresponding author); Rambaccussing, Dooruj.

    Dundee : University of Dundee, Department of Economic Studies , 2016. (Dundee Discussion Papers in Economics; No. 294).

    Research output: Working paper

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    Russell B, Rambaccussing D. Breaks and the Statistical Process of Inflation: The Case of the 'Modern' Phillips Curve. Dundee: University of Dundee, Department of Economic Studies . 2016 Feb 27. (Dundee Discussion Papers in Economics; 294).