Advanced Search
MyIDEAS: Login to save this article or follow this journal

Understanding the flattening Phillips curve

Contents:

Author Info

  • Kuttner, Ken
  • Robinson, Tim

Abstract

Policy-makers have recently noted an apparent flattening of the Phillips curve. The implications of such a change include that a positive output gap would be less inflationary, but the cost of reducing inflation, once established, would increase. This paper's objective is to review the evidence and possible explanations for the flattening of the Phillips curve in the context of new-Keynesian economic theory. Using data for the United States and Australia, we find that the flattening is evident in the baseline [`]structural' new-Keynesian Phillips curve. We consider a variety of reasons for this structural flattening, such as data problems, globalisation and alternative definitions of marginal cost, none of which is entirely satisfactory.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/B6W5T-4V34DDG-1/2/1a57eafc580091ec395416053be82eac
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal The North American Journal of Economics and Finance.

Volume (Year): 21 (2010)
Issue (Month): 2 (August)
Pages: 110-125

as in new window
Handle: RePEc:eee:ecofin:v:21:y:2010:i:2:p:110-125

Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/620163

Related research

Keywords: Phillips curve Inflation;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Lawless, Martina & Whelan, Karl T., 2011. "Understanding the dynamics of labor shares and inflation," Journal of Macroeconomics, Elsevier, Elsevier, vol. 33(2), pages 121-136, June.
  2. Jordi Galí & Mark Gertler & David López-Salido, 2005. "Robustness of the Estimates of the Hybrid New Keynesian Phillips Curve," Banco de Espa�a Working Papers 0520, Banco de Espa�a.
  3. Gali, Jordi & Gertler, Mark & Lopez-Salido, J. David, 2001. "European inflation dynamics," European Economic Review, Elsevier, Elsevier, vol. 45(7), pages 1237-1270.
  4. Kimball, Miles S, 1995. "The Quantitative Analytics of the Basic Neomonetarist Model," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 27(4), pages 1241-77, November.
  5. Adolfson, Malin & Laséen, Stefan & Lindé, Jesper & Villani, Mattias, 2005. "Bayesian Estimation of an Open Economy DSGE Model with Incomplete Pass-Through," Working Paper Series 179, Sveriges Riksbank (Central Bank of Sweden).
  6. Rudd, Jeremy & Whelan, Karl, 2002. "Does the Labour Share of Income Drive Inflation?," Research Technical Papers 2/RT/02, Central Bank of Ireland.
  7. Alan B. Krueger, 1999. "Measuring Labor's Share," American Economic Review, American Economic Association, American Economic Association, vol. 89(2), pages 45-51, May.
  8. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," NBER Working Papers 8403, National Bureau of Economic Research, Inc.
  9. Kenneth Rogoff, 2003. "Globalization and global disinflation," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 45-78.
  10. Tim W. Cogley & Argia M. Sbordone, 2005. "A Search for a Structural Phillips Curve," Working Papers, University of California, Davis, Department of Economics 510, University of California, Davis, Department of Economics.
  11. Guido Ascari, 2004. "Staggered Prices and Trend Inflation: Some Nuisances," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(3), pages 642-667, July.
  12. Binder,M. & Pesaran,H.M., 1995. "Multivariate Rational Expectations Models and Macroeconomic Modelling: A Review and Some New Results," Cambridge Working Papers in Economics 9415, Faculty of Economics, University of Cambridge.
  13. Rudebusch, Glenn D, 2005. "Assessing the Lucas Critique in Monetary Policy Models," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 37(2), pages 245-72, April.
  14. Claudio E. V. Borio & Andrew Filardo, 2007. "Globalisation and inflation: New cross-country evidence on the global determinants of domestic inflation," BIS Working Papers 227, Bank for International Settlements.
  15. Laurence M. Ball, 2006. "Has Globalization Changed Inflation?," NBER Working Papers 12687, National Bureau of Economic Research, Inc.
  16. John C. Williams, 2006. "Inflation persistence in an era of well-anchored inflation expectations," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue oct13.
  17. John M. Roberts, 2004. "Monetary policy and inflation dynamics," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2004-62, Board of Governors of the Federal Reserve System (U.S.).
  18. Sargent, Thomas J, 1971. "A Note on the 'Accelerationist' Controversy," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 3(3), pages 721-25, August.
  19. Frederic S. Mishkin, 2007. "Inflation Dynamics," International Finance, Wiley Blackwell, Wiley Blackwell, vol. 10(3), pages 317-334, December.
  20. Athanasios Orphanides & Simon van Norden, 2002. "The Unreliability of Output-Gap Estimates in Real Time," The Review of Economics and Statistics, MIT Press, vol. 84(4), pages 569-583, November.
  21. Lawrence Slifman & Carol Corrado, 1999. "Decomposition of Productivity and Unit Costs," American Economic Review, American Economic Association, American Economic Association, vol. 89(2), pages 328-332, May.
  22. Julio J. Rotemberg & Michael Woodford, 1999. "The Cyclical Behavior of Prices and Costs," NBER Working Papers 6909, National Bureau of Economic Research, Inc.
  23. Kristoffer Nimark, 2007. "A Structural Model of Australia as a Small Open Economy," RBA Research Discussion Papers, Reserve Bank of Australia rdp2007-01, Reserve Bank of Australia.
  24. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
  25. Kenneth S. Rogoff, 2006. "Impact of globalization on monetary policy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, pages 265-305.
  26. Peter McAdam & Alpo Willman, 2004. "Supply, Factor Shares and Inflation Persistence: Re-examining Euro-area New-Keynesian Phillips Curves," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(s1), pages 637-670, 09.
  27. Nimark, Kristoffer, 2008. "Dynamic pricing and imperfect common knowledge," Journal of Monetary Economics, Elsevier, Elsevier, vol. 55(2), pages 365-382, March.
  28. Rudd, Jeremy & Whelan, Karl, 2005. "Modelling Inflation Dynamics: A Critical Review of Recent Research," Research Technical Papers 7/RT/05, Central Bank of Ireland.
  29. Gordon de Brouwer & Neil R. Ericsson, 1995. "Modelling inflation in Australia," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 530, Board of Governors of the Federal Reserve System (U.S.).
  30. Alon Binyamini & Assaf Razin, 2007. "Flattened Inflation-Output Tradeoff and Enhanced Anti-Inflation Policy as an Equilibrium Outcome of Globalization," Working Papers 232007, Hong Kong Institute for Monetary Research.
  31. David Gruen & Tim Robinson & Andrew Stone, 2005. "Output Gaps In Real Time: How Reliable Are They?," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 81(252), pages 6-18, 03.
  32. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules And Macroeconomic Stability: Evidence And Some Theory," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 115(1), pages 147-180, February.
  33. Argia M. Sbordone, 2007. "Globalization and Inflation Dynamics: The Impact of Increased Competition," NBER Chapters, in: International Dimensions of Monetary Policy, pages 547-579 National Bureau of Economic Research, Inc.
  34. Jordi Gali & Mark Gertler, 2000. "Inflation Dynamics: A Structural Econometric Analysis," NBER Working Papers 7551, National Bureau of Economic Research, Inc.
  35. Stephen Murchison & Andrew Rennison, 2006. "ToTEM: The Bank of Canada's New Quarterly Projection Model," Technical Reports, Bank of Canada 97, Bank of Canada.
  36. Jacqueline Dwyer & Kenneth Leong, 2001. "Changes in the determinants of inflation in Australia," BIS Papers chapters, in: Bank for International Settlements (ed.), Empirical studies of structural changes and inflation, volume 3, pages 1-28 Bank for International Settlements.
  37. Mark Bils & Peter J. Klenow, 2002. "Some Evidence on the Importance of Sticky Prices," NBER Working Papers 9069, National Bureau of Economic Research, Inc.
  38. Groen, Jan J J & Mumtaz, Haroon, 2008. "Investigating the structural stability of the Phillips curve relationship," Bank of England working papers 350, Bank of England.
  39. Mariano Kulish & Daniel Rees, 2008. "Monetary Transmission and the Yield Curve in a Small Open Economy," RBA Research Discussion Papers, Reserve Bank of Australia rdp2008-03, Reserve Bank of Australia.
  40. Charles Bean, 2007. "Globalisation and Inflation," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 8(1), pages 57-73, January.
  41. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 1(1), pages 19-46, January.
  42. Koenig, Evan F., 2003. "Is the markup a useful real-time predictor of inflation?," Economics Letters, Elsevier, Elsevier, vol. 80(2), pages 261-267, August.
  43. Batini, Nicoletta & Jackson, Brian & Nickell, Stephen, 2005. "An open-economy new Keynesian Phillips curve for the U.K," Journal of Monetary Economics, Elsevier, Elsevier, vol. 52(6), pages 1061-1071, September.
  44. Doyle, Matthew & Beaudry, Paul, 2000. "What Happened to the Phillips Curve in the 1990s in Canada," Staff General Research Papers 10286, Iowa State University, Department of Economics.
  45. Assaf Razin & Alon Binyamini, 2007. "Flattened Inflation-Output Tradeoff and Enhanced Anti-Inflation Policy: Outcome of Globalization?," NBER Working Papers 13280, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Antonia López-Villavicencio & Valérie Mignon, 2013. "Nonlinearity of the inflation-output trade-off and time-varying price rigidity," EconomiX Working Papers 2013-1, University of Paris West - Nanterre la Défense, EconomiX.
  2. Saglio, Sophie & López-Villavicencio, Antonia, 2012. "Introducing price-setting behaviour in the Phillips Curve: the role of nonlinearities," MPRA Paper 46646, University Library of Munich, Germany.
  3. David Norman & Anthony Richards, 2010. "Modelling Inflation in Australia," RBA Research Discussion Papers, Reserve Bank of Australia rdp2010-03, Reserve Bank of Australia.
  4. Araújo, Eurilton, 2008. "Robust Monetary Policy with the Consumption-Wealth Channel," Insper Working Papers, Insper Working Paper, Insper Instituto de Ensino e Pesquisa wpe_110, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  5. Benkovskis, Konstantins & Caivano, Michele & D’Agostino, Antonello & Dieppe, Alistair & Hurtado, Samuel & Karlsson, Tohmas & Ortega, Eva & Várnai, Tímea, 2011. "Assessing the sensitivity of inflation to economic activity," Working Paper Series, European Central Bank 1357, European Central Bank.
  6. Paradiso, Antonio & Rao, B. Bhaskara, 2012. "Flattening of the Phillips curve and the role of the oil price: An unobserved component model for the USA and Australia," Economics Letters, Elsevier, Elsevier, vol. 117(1), pages 259-262.
  7. Adam Cagliarini & Tim Robinson & Allen Tran, 2010. "Reconciling Microeconomic and Macroeconomic Estimates of Price Stickiness," RBA Research Discussion Papers, Reserve Bank of Australia rdp2010-01, Reserve Bank of Australia.
  8. Andrew Hodge & Tim Robinson & Robyn Stuart, 2008. "A Small BVAR-DSGE Model for Forecasting the Australian Economy," RBA Research Discussion Papers, Reserve Bank of Australia rdp2008-04, Reserve Bank of Australia.
  9. Sell, Friedrich L. & Reinisch, David C., 2013. "How do Beveridge and Phillips curves in the euro area behave under the stress of the world economic crisis?," Working Papers in Economics 2013,1, Universität der Bundeswehr München, Economic Research Group.
  10. Tim Robinson, 2013. "Estimating and Identifying Empirical BVAR-DSGE Models for Small Open Economies," RBA Research Discussion Papers, Reserve Bank of Australia rdp2013-06, Reserve Bank of Australia.
  11. Sean Langcake & Tim Robinson, 2013. "An Empirical BVAR-DSGE Model of the Australian Economy," RBA Research Discussion Papers, Reserve Bank of Australia rdp2013-07, Reserve Bank of Australia.
  12. Steffen Ahrens & Matthias Hartmann, 2014. "State-dependence vs. Time-dependence: An Empirical Multi-Country Investigation of Price Sluggishness," Kiel Working Papers 1907, Kiel Institute for the World Economy.
  13. Benjamin Wong, 2013. "The Evolution of the U.S. Output-Inflation Tradeoff," CAMA Working Papers 2013-70, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  14. Jeff Borland, 2011. "The Australian Labour Market in the 2000s: The Quiet Decade," RBA Annual Conference Volume, in: Hugo Gerard & Jonathan Kearns (ed.), The Australian Economy in the 2000s Reserve Bank of Australia.
  15. Jaromir Baxa & Miroslav Plasil & Borek Vasicek, 2013. "Inflation and the Steeplechase Between Economic Activity Variables," Working Papers, Czech National Bank, Research Department 2013/15, Czech National Bank, Research Department.
  16. Vicente da Gama Machado & Marcelo Savino Portugal, 2014. "Phillips curve in Brazil: an unobserved components approach," Working Papers Series, Central Bank of Brazil, Research Department 354, Central Bank of Brazil, Research Department.
  17. David Norman & Anthony Richards, 2012. "The Forecasting Performance of Single Equation Models of Inflation," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 88(280), pages 64-78, 03.
  18. Abbas, Syed Kanwar & Sgro, Pasquale M., 2011. "New Keynesian Phillips Curve and inflation dynamics in Australia," Economic Modelling, Elsevier, vol. 28(4), pages 2022-2033, July.
  19. Paradiso, Antonio & Rao, B. Bhaskara, 2011. "Flattening of the Phillips Curve and the Role of Oil Price: An Unobserved Components Model for the USA and Australia," MPRA Paper 29606, University Library of Munich, Germany.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:ecofin:v:21:y:2010:i:2:p:110-125. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.