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Is the Phillips Curve Really a Curve? Some Evidence for Canada, the United Kingdom, and the United States

Author

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  • Mr. Douglas Laxton
  • Guy Debelle

Abstract

Previous tests for convexity in the Phillips curve have been biased because researchers have employed filtering techniques for the NAIRU that have been fundamentally inconsistent with the existence of convexity. This paper places linear and nonlinear models of the Phillips curve on an equal statistical footing by estimating model-consistent measures of the NAIRU. After imposing plausible restrictions on the variability in the NAIRU we find that the nonlinear model fits the data best. The implications for the macroeconomic policy debate is that policymakers that are unsuccessful in stabilizing the business cycle will induce a higher natural rate of unemployment.

Suggested Citation

  • Mr. Douglas Laxton & Guy Debelle, 1996. "Is the Phillips Curve Really a Curve? Some Evidence for Canada, the United Kingdom, and the United States," IMF Working Papers 1996/111, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1996/111
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    Keywords

    WP; inflation expectation; real interest rate; business cycle; standard error; unemployment-inflation tradeoff; NAIRU estimate; unemployment-inflation process; estimates of the NAIRU; expectation proxy; excess demand; natural rate of unemployment estimate; NAIRU series; inflation component; recursive estimate; Inflation; Unemployment rate; Real interest rates; Business cycles; Securities markets;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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