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Is the short-run Phillips curve nonlinear? Empirical evidence for Australia, Sweden and the United States

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  • Eliasson, Ann-Charlotte

    (Dept. of Economic Statistics, Stockholm School of Economics)

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    Abstract

    The Phillips curve has generally been estimated in a linear framework which implies a constant relationship between inflation and unemployment. Lately there have been several studies which claim that the slope of the Phillips curve is a function of macroeconomic conditions and that the relationship is asymmetric. If this is true the assumption of linearity is too restrictive. In this paper linear Phillips curves for Australia, Sweden and the United States are tested for linearity and parameter constancy. The nonlinear alternative is specified as a smooth transition regression model. It turns out that linearity is rejected for both Australia and Sweden while the Phillips curve for the United States is linear.

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    Bibliographic Info

    Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 330.

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    Length: 37 pages
    Date of creation: 08 Sep 1999
    Date of revision:
    Handle: RePEc:hhs:hastef:0330

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    Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
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    Related research

    Keywords: Phillips curve; dynamic model; econometric model building; encompassing; parameter constancy; smooth transition regression;

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    Cited by:
    1. Frédérick Demers, 2003. "The Canadian Phillips Curve and Regime Shifting," Working Papers 03-32, Bank of Canada.

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