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.
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 language | English |
|---|---|
| Place of Publication | Dundee |
| Publisher | University of Dundee |
| Number of pages | 31 |
| Publication status | Published - 27 Feb 2016 |
Publication series
| Name | Dundee Discussion Papers in Economics |
|---|---|
| Publisher | University of Dundee |
| No. | 294 |
| ISSN (Print) | 1473-236X |
Keywords
- Phillips curve
- Inflation
- Structural breaks
- Non-stationary data
- JEL Classification
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)
- Economics and Econometrics
- Finance