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The fragility of the Phillips curve: A bumpy ride in the frequency domain

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  • Feng Zhu
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Abstract

We provide a robustness check of the US Phillips curve in the frequency domain. We design frequency-specific coeffcients of correlation (FSCC) and regression (FSCR), based on our frequency-specific data extraction procedure. Being real-valued, signed and normalised, the FSCC is superior to traditional indicators such as coherence and cospectrum. Our FSCC and FSCR estimates suggest that the Phillips tradeoffs vary greatly across frequencies, with frequent sign reversals. They seem to be stable in higher frequencies, but unstable in low and medium frequencies, and they are sensitive to the level and boundaries of frequency aggregation, to the way data are processed prior to analysis (eg detrending) and to the type of variables used. In this sense, the Phillips curves are fragile. The impact of potential cross-frequency model inconsistency on model estimation using conventional time domain methods needs careful scrutiny.

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Bibliographic Info

Paper provided by Bank for International Settlements in its series BIS Working Papers with number 183.

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Length: 46 pages
Date of creation: Oct 2005
Date of revision:
Handle: RePEc:bis:biswps:183

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Related research

Keywords: Phillips curve; inflation-output tradeoff; fltering; frequency-specic coefficient of correlation; spectral regression;

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  1. N. Gregory Mankiw, 2000. "The Inexorable and Mysterious Tradeoff Between Inflation and Unemployment," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1905, Harvard - Institute of Economic Research.
  2. Tan, Hui Boon & Ashley, Richard, 1999. "Detection And Modeling Of Regression Parameter Variation Across Frequencies," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 3(01), pages 69-83, March.
  3. Barnett,William A. & Powell,James & Tauchen,George E. (ed.), 1991. "Nonparametric and Semiparametric Methods in Econometrics and Statistics," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521424318.
  4. Barnett,William A. & Powell,James & Tauchen,George E. (ed.), 1991. "Nonparametric and Semiparametric Methods in Econometrics and Statistics," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521370905.
  5. Berkowitz, Jeremy, 2001. "Generalized spectral estimation of the consumption-based asset pricing model," Journal of Econometrics, Elsevier, Elsevier, vol. 104(2), pages 269-288, September.
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Cited by:
  1. Virén , Matti, 2005. "Inflation expectations and regime shifts in the euro area," Research Discussion Papers, Bank of Finland 25/2005, Bank of Finland.
  2. Matti Viren, 2006. "Inflation Expectations and Regime Shifts," Discussion Papers, Aboa Centre for Economics 5, Aboa Centre for Economics.

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