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A Multiple Break Panel Approach To Estimating United States Phillips Curves

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  • Bill Russell
  • Anindya Banerjee
  • Issam Malki
  • Natalia Ponomareva

Abstract

Phillips curves have often been estimated without due attention to the underlying time series properties of the data. In particular, the consequences of inflation having discrete breaks in mean, for example caused by supply shocks and the corresponding responses of policymakers, have not been studied adequately. We show by means of simulations and a detailed empirical example based on United States data that not taking account of breaks may lead to spuriously upwardly biased estimates of the dynamic inflation terms of the Phillips curve. We suggest a method to account for the breaks in mean and obtain meaningful and unbiased estimates of the short- and long-run Phillips curves in the United States and contrast our results with those derived from more traditional approaches, most recently undertaken by Cogley and Sbordone (2008).

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Bibliographic Info

Paper provided by Economic Studies, University of Dundee in its series Dundee Discussion Papers in Economics with number 232.

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Length: 56 pages
Date of creation: Apr 2010
Date of revision:
Handle: RePEc:dun:dpaper:232

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Keywords: Phillips curve; inflation; panel data; non-stationary data; breaks;

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References

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Citations

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Cited by:
  1. David Norman & Anthony Richards, 2012. "The Forecasting Performance of Single Equation Models of Inflation," The Economic Record, The Economic Society of Australia, vol. 88(280), pages 64-78, 03.
  2. Bill Russell, 2013. "Macroeconomics: science or faith based discipline?," Dundee Discussion Papers in Economics 276, Economic Studies, University of Dundee.
  3. Nymoen, Ragnar & Swensen, Anders Rygh & Tveter, Eivind, 2012. "Interpreting the evidence for New Keynesian models of inflation dynamics," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 253-263.
  4. Russell, Bill & Chowdhury, Rosen Azad, 2013. "Estimating United States Phillips curves with expectations consistent with the statistical process of inflation," Journal of Macroeconomics, Elsevier, vol. 35(C), pages 24-38.
  5. J. James Reade & Ulrich Volz, 2011. "From the General to the Specific," Discussion Papers 11-18, Department of Economics, University of Birmingham.
  6. Rao, B. Bhaskara & Paradiso, Antonio & Esposito, Piero, 2011. "Non-stationary inflation and panel estimates of the n ew Keynesian Phillips curve for Australia," MPRA Paper 29242, University Library of Munich, Germany.
  7. Mariano Kulish & Adrian Pagan, 2013. "Issues in Estimating New-Keynesian Phillips Curves in the Presence of Unknown Structural Change," RBA Research Discussion Papers rdp2013-11, Reserve Bank of Australia.
  8. Jennifer L. Castle & Jurgen A. Doornik & David F. Hendry & Ragnar Nymoen, 2012. "Mis-specification Testing: Non-Invariance of Expectations Models of Inflation," Working Paper Series 50_12, The Rimini Centre for Economic Analysis.

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