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Breaks and the statistical process of inflation: the case of estimating the ‘modern’ long-run Phillips curve

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  • Bill Russell

    (University of Dundee)

  • Dooruj Rambaccussing

    (University of Dundee)

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 US data. Alternatively, 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 in the data will suffer from a ‘small-sample’ problem as there are too few stationary inflation ‘regimes’. Using the extensive literature on identification of structural breaks, we identify inflation regimes which are used in turn to estimate with panel data techniques the US long-run Phillips curve.

Suggested Citation

  • Bill Russell & Dooruj Rambaccussing, 2019. "Breaks and the statistical process of inflation: the case of estimating the ‘modern’ long-run Phillips curve," Empirical Economics, Springer, vol. 56(5), pages 1455-1475, May.
    • Handle: RePEc:spr:empeco:v:56:y:2019:i:5:d:10.1007_s00181-017-1404-5
    DOI: 10.1007/s00181-017-1404-5
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    References listed on IDEAS

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    More about this item

    Keywords

    Phillips curve; Inflation; Structural breaks; Non-stationary data;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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