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Estimating United States Phillips Curves With Expectations Consistent With The Statistical Process Of Inflation

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  • Russell, Bill
  • Chowdhury, Rosen Azad

Abstract

‘Modern’ Phillips curve theories predict inflation is an integrated, or near integrated, process. However, inflation appears bounded above and below in developed economies and so cannot be ‘truly’ integrated and more likely stationary around a shifting mean. If agents believe inflation is integrated as in the ‘modern’ theories then they are making systematic errors concerning the statistical process of inflation. An alternative theory of the Phillips curve is developed that is consistent with the ‘true’ statistical process of inflation. It is demonstrated that United States inflation data is consistent with the alternative theory but not with the existing ‘modern’ theories.

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Paper provided by Scottish Institute for Research in Economics (SIRE) in its series SIRE Discussion Papers with number 2012-13.

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Date of creation: 2012
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Handle: RePEc:edn:sirdps:316

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Keywords: Phillips curve; inflation; structural breaks; GARCH; nonstationary data;

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  16. Russell, Bill, 2011. "Non-stationary inflation and panel estimates of United States short and long-run Phillips curves," Journal of Macroeconomics, Elsevier, vol. 33(3), pages 406-419, September.
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Cited by:
  1. Bill Russell, 2013. "Macroeconomics: science or faith based discipline?," Dundee Discussion Papers in Economics 276, Economic Studies, University of Dundee.
  2. Bill Russell, 2013. "ARCH and structural breaks in United States inflation," Dundee Discussion Papers in Economics 277, Economic Studies, University of Dundee.

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