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Testing the Nonlinearity of the Phillips Curve. Implications for Monetary Policy

Author

Listed:
  • Georgiana BALABAN

    (Bucharest Academy of Economic Studies)

  • Denis VÎNTU

    (Bucharest Academy of Economic Studies)

Abstract

This paper studies the nonlinearity of the Phillips Curve and its implications for monetary policy. To investigate the trade-off between output gap and inflation volatility we used a backward-looking model type. The data for our empirical analysis is obtained from the Area Wide Model (AWM) Database (from 1970 to 2008 for Euro area) and National Institute of Statistics (from 2000 to 2009 for Romania) and has quarterly frequency. The results of econometric tests indicate a significant estimated coefficient of the output gap for Romania, compared with the Eurozone; we find no significant evidence of nonlinearity of the Phillips curve in the European Monetary Union. This suggests that the optimal choice for European Central Bank should be a fixed inflation targeting, while the National Bank of Romania's monetary policy strategy should aim a flexible inflation targeting.

Suggested Citation

  • Georgiana BALABAN & Denis VÎNTU, 2010. "Testing the Nonlinearity of the Phillips Curve. Implications for Monetary Policy," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 4(4(545)), pages 101-120, April.
  • Handle: RePEc:agr:journl:v:4(545):y:2010:i:4(545):p:101-120
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    Citations

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    Cited by:

    1. Phiri, Andrew, 2015. "Examining asymmetric effects in the South African Philips curve: Evidence from logistic smooth transition regression (LSTR) models," MPRA Paper 64487, University Library of Munich, Germany.
    2. Dorin Jula & Nicoleta Jula, 2017. "The Phillips Curve for the Romanian Economy, 1992-2017," Computational Methods in Social Sciences (CMSS), "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences, vol. 5(1), pages 36-48, June.
    3. Nurudeen Abu, 2019. "Inflation and Unemployment Trade-off: A Re-examination of the Phillips Curve and its Stability in Nigeria," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 13(1), March.
    4. Xu, Qifa & Niu, Xufeng & Jiang, Cuixia & Huang, Xue, 2015. "The Phillips curve in the US: A nonlinear quantile regression approach," Economic Modelling, Elsevier, vol. 49(C), pages 186-197.
    5. Ortansa T. FLOREA (MOISE), 2014. "Relationship Between Inflation And Unemployment In Romania, Age Group 20-24 Years," SEA - Practical Application of Science, Romanian Foundation for Business Intelligence, Editorial Department, issue 3, pages 198-203, April.

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