Nonlinearity of the inflation-output trade-off and time-varying price rigidity
AbstractRelying on the backward-looking Phillips curve; we estimate the level of inflation that erodes price rigidity and investigate its time constancy. To this end; we employ smooth transition regression models with rolling regressions to account for varying threshold inflation levels. Studying six advanced countries over the 1970-2012 period; our results show that both the slope of the Phillips curve and the threshold; trend inflation that erodes price rigidity are time varying. These characteristics could not be captured by a static linear or nonlinear model; illustrating the rich flexibility embedded in our proposed model.
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Bibliographic InfoPaper provided by CEPII research center in its series Working Papers with number 2013-02.
Date of creation: Jan 2013
Date of revision:
Phillips curve; inflation; price rigidity; nonlinearity; menu costs;
Other versions of this item:
- 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.
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
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