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Is the Phillips Curve a Curve? Some Evidence and Implications for Australia

  • Debelle, Guy
  • Vickery, James

The Phillips curve has generally been estimated in a linear framework. This paper investigates the possibility that the Phillips curve is indeed a curve, and shows that a convex short-run Phillips curve may be a more accurate representation of reality than the traditionally used linear specification. The paper also discusses the policy implications of convexity in the Phillips curve. These include the need for policy to be forward looking and to act preemptively. Convexity provides a strong rationale for stabilization policy, and it reinforces the need for policymakers to proceed cautiously. It also implies that deep recessions may have only a marginally greater disinflationary impact than shallower ones, unless they induce large credibility bonuses. Copyright 1998 by The Economic Society of Australia.

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Article provided by The Economic Society of Australia in its journal The Economic Record.

Volume (Year): 74 (1998)
Issue (Month): 227 (December)
Pages: 384-98

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Handle: RePEc:bla:ecorec:v:74:y:1998:i:227:p:384-98
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  1. Robert Ford & Douglas Laxton, 1995. "World Public Debt and Real Interest Rates," IMF Working Papers 95/30, International Monetary Fund.
  2. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345, March.
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  10. Erica L. Groshen & Mark E. Schweitzer, 1997. "Identifying inflation's grease and sand effects in the labor market," Staff Reports 31, Federal Reserve Bank of New York.
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  17. 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 96/111, International Monetary Fund.
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  23. repec:fth:harver:1418 is not listed on IDEAS
  24. Marco A. Espinosa-Vega & Steven Russell, 1997. "History and theory of the NAIRU: a critical review," Economic Review, Federal Reserve Bank of Atlanta, issue Q 2, pages 4-25.
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