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Inflation dynamics in the frequency domain

Author

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  • Martins, Manuel M.F.
  • Verona, Fabio

Abstract

We use a New Keynesian Phillips Curve to study the dynamics of inflation in the frequency domain. Inflation expectations dominate medium-to-long-run cycles, energy inflation dominate short cycles and also longer cycles once expectations became anchored. While statistically significant, unemployment is not economically relevant at any frequency band.

Suggested Citation

  • Martins, Manuel M.F. & Verona, Fabio, 2023. "Inflation dynamics in the frequency domain," Economics Letters, Elsevier, vol. 231(C).
    • Handle: RePEc:eee:ecolet:v:231:y:2023:i:c:s0165176523003294
    DOI: 10.1016/j.econlet.2023.111304
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    References listed on IDEAS

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    1. Faria, Gonçalo & Verona, Fabio, 2018. "Forecasting stock market returns by summing the frequency-decomposed parts," Journal of Empirical Finance, Elsevier, vol. 45(C), pages 228-242.
    2. Olivier J. Blanchard & Ben S. Bernanke, 2023. "What Caused the US Pandemic-Era Inflation?," NBER Working Papers 31417, National Bureau of Economic Research, Inc.
    3. Barnichon, Regis & Mesters, Geert, 2021. "The Phillips multiplier," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 689-705.
    4. Michael McLeay & Silvana Tenreyro, 2020. "Optimal Inflation and the Identification of the Phillips Curve," NBER Macroeconomics Annual, University of Chicago Press, vol. 34(1), pages 199-255.
    5. Olivier Coibion & Yuriy Gorodnichenko, 2015. "Is the Phillips Curve Alive and Well after All? Inflation Expectations and the Missing Disinflation," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(1), pages 197-232, January.
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    7. Aguiar-Conraria, Luís & Martins, Manuel M.F. & Soares, Maria Joana, 2023. "The Phillips curve at 65: Time for time and frequency," Journal of Economic Dynamics and Control, Elsevier, vol. 151(C).
    8. Marco Gallegati & Mauro Gallegati & James Bernard Ramsey & Willi Semmler, 2011. "The US Wage Phillips Curve across Frequencies and over Time," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 73(4), pages 489-508, August.
    9. Benati, Luca, 2015. "The long-run Phillips curve: A structural VAR investigation," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 15-28.
    10. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
    11. Jonathon Hazell & Juan Herreño & Emi Nakamura & Jón Steinsson, 2022. "The Slope of the Phillips Curve: Evidence from U.S. States," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 137(3), pages 1299-1344.
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    More about this item

    Keywords

    Inflation dynamics; New Keynesian Phillips Curve; Frequency domain; Wavelets;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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