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Flattening of the Phillips curve and the role of the oil price: An unobserved component model for the USA and Australia

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  • Paradiso, Antonio
  • Rao, B. Bhaskara
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    Abstract

    We used the unobserved component model of Harvey (1989, 2011) to estimate the Phillips curve for the USA and Australia, augmenting it with the oil price. Our results show that while the coefficient of demand pressure and the intercept decreased, the coefficient of the oil price increased. Therefore, the oil price is likely to play a significant role in future inflation rates.

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    Bibliographic Info

    Article provided by Elsevier in its journal Economics Letters.

    Volume (Year): 117 (2012)
    Issue (Month): 1 ()
    Pages: 259-262

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    Handle: RePEc:eee:ecolet:v:117:y:2012:i:1:p:259-262

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    Web page: http://www.elsevier.com/locate/ecolet

    Related research

    Keywords: Unobserved component model; USA; Australia; Flattening Phillips curve; Oil price;

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    1. Olivier Blanchard & Jordi Galí, 2007. "Real Wage Rigidities and the New Keynesian Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(s1), pages 35-65, 02.
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    3. Jeffrey C. Fuhrer, 1995. "The Phillips curve is alive and well," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 41-56.
    4. Bill Russell, 2007. "Non-Stationary Inflation and Panel Estimates of United States Short and Long-run Phillips curves," Dundee Discussion Papers in Economics 200, Economic Studies, University of Dundee.
    5. Gruben, William C. & McLeod, Darryl, 2002. "Capital account liberalization and inflation," Economics Letters, Elsevier, vol. 77(2), pages 221-225, October.
    6. 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.
    7. Harvey, A., 2008. "Modeling the Phillips curve with unobserved components," Cambridge Working Papers in Economics 0805, Faculty of Economics, University of Cambridge.
    8. Roberts, John M, 2006. "Monetary Policy and Inflation Dynamics," MPRA Paper 812, University Library of Munich, Germany.
    9. John C.B. Cooper, 2003. "Price elasticity of demand for crude oil: estimates for 23 countries," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 27(1), pages 1-8, 03.
    10. Frederic S. Mishkin, 2007. "Inflation Dynamics," NBER Working Papers 13147, National Bureau of Economic Research, Inc.
    11. Fuhrer, Jeffrey C., 2010. "Inflation Persistence," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 9, pages 423-486 Elsevier.
    12. Timothy Cogley & Giorgio E. Primiceri & Thomas J. Sargent, 2008. "Inflation-Gap Persistence in the U.S," NBER Working Papers 13749, National Bureau of Economic Research, Inc.
    13. Commandeur, Jacques J.F. & Koopman, Siem Jan, 2007. "An Introduction to State Space Time Series Analysis," OUP Catalogue, Oxford University Press, number 9780199228874, September.
    14. Kuttner, Ken & Robinson, Tim, 2010. "Understanding the flattening Phillips curve," The North American Journal of Economics and Finance, Elsevier, vol. 21(2), pages 110-125, August.
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