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Modeling The Philips Curve: A Time-Varying Volatility Approach

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  • Ewing, Bradley T.
  • Seyfried, William L

    ()

Abstract

This paper examines the Phillips curve relationship when the second moment of inflation is nonlinear. Specifically, we estimate GARCH models that provide evidence consistent with Keynesian-type models that imply output "overshooting" and inflation fluctuations following aggregate demand shocks. Additionally, the evidence suggests that an increase in the conditional variability of inflation leads to higher levels of inflation.

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File URL: http://www.usc.es/~economet/reviews/aeid321.pdf
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Bibliographic Info

Article provided by Euro-American Association of Economic Development in its journal Applied Econometrics and International Development.

Volume (Year): 3 (2003)
Issue (Month): 2 ()
Pages:

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Handle: RePEc:eaa:aeinde:v:3:y:2003:i:3_7

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  1. Reagan, Patricia & Stulz, Rene M, 1993. "Contracting Costs, Inflation, and Relative Price Variability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(3), pages 585-601, August.
  2. Michael T. Owyang, 2001. "Persistence, excess volatility, and volatility clusters in inflation," Review, Federal Reserve Bank of St. Louis, issue Nov., pages 41-52.
  3. Tim Bollerslev & Jeffrey M. Wooldridge, 1988. "Quasi-Maximum Likelihood Estimation of Dynamic Models with Time-Varying Covariances," Working papers 505, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Robert King & Mark W. Watson, 1992. "Testing Long Run Neutrality," NBER Working Papers 4156, National Bureau of Economic Research, Inc.
  5. W. Bolt & P.J.A. van Els, 2000. "Output Gap and Inflation in the EU," DNB Staff Reports (discontinued) 44, Netherlands Central Bank.
  6. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
  7. Cukierman, Alex & Meltzer, Allan H, 1986. "A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information," Econometrica, Econometric Society, vol. 54(5), pages 1099-1128, September.
  8. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
  9. Nobay, A. R. & Peel, D. A., 2000. "Optimal monetary policy with a nonlinear Phillips curve," Economics Letters, Elsevier, vol. 67(2), pages 159-164, May.
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