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Asymmetric output cost of lowering inflation: empirical evidence for Canada

Author

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  • Hyeon-Seung Huh
  • Hyun-Hoon Lee

Abstract

A strand of theoretical and empirical evidence in the literature suggests non-linearity in the output-inflation relationship, viz. a non-linear Phillips curve. We develop a VAR model of output, inflation, and terms of trade augmented with logistic smooth transition autoregression specifications. Empirically, the model captures non-linear features present in the data. Output costs of reducing inflation vary, depending on the economy, size of inflation change, and whether policy makers seek to disinflate or prevent inflation from rising. Thus, inferences based on the conventional linear Phillips curve may provide misleading signals about the cost of lowering inflation and the appropriate policy stance.

Suggested Citation

  • Hyeon-Seung Huh & Hyun-Hoon Lee, 2002. "Asymmetric output cost of lowering inflation: empirical evidence for Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 35(2), pages 218-238, May.
    • Handle: RePEc:cje:issued:v:35:y:2002:i:2:p:218-238
    DOI: 10.1111/1540-5982.00128
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    Cited by:

    1. repec:hal:spmain:info:hdl:2441/2082 is not listed on IDEAS
    2. Jérôme Creel & Éloi Laurent & Jacques Le Cacheux, 2007. "Politiques et performances macroéconomiques de la zone euro. Institutions, incitations, stratégies," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(3), pages 249-281.
    3. Denise R Osborn & Pedro J Perez & Marianne Sensier, 2005. "Business Cycle Linkages for the G7 Countries: Does the US Lead the World?," Economics Discussion Paper Series 0527, Economics, The University of Manchester.
    4. repec:hal:spmain:info:hdl:2441/2139 is not listed on IDEAS
    5. 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.
    6. repec:spo:wpmain:info:hdl:2441/2082 is not listed on IDEAS
    7. Frédérick Demers, 2003. "The Canadian Phillips Curve and Regime Shifting," Staff Working Papers 03-32, Bank of Canada.
    8. repec:spo:wpecon:info:hdl:2441/2139 is not listed on IDEAS
    9. Zhou, Wei-Xing & Sornette, Didier, 2006. "Non-parametric determination of real-time lag structure between two time series: The "optimal thermal causal path" method with applications to economic data," Journal of Macroeconomics, Elsevier, vol. 28(1), pages 195-224, March.
    10. Didier Sornette & Wei-Xing Zhou, 2005. "Non-parametric determination of real-time lag structure between two time series: the 'optimal thermal causal path' method," Quantitative Finance, Taylor & Francis Journals, vol. 5(6), pages 577-591.
    11. repec:hal:wpspec:info:hdl:2441/2139 is not listed on IDEAS
    12. repec:spo:wpmain:info:hdl:2441/2139 is not listed on IDEAS
    13. Jérôme Creel & Eloi Laurent & Jacques Le Cacheux, 2007. "Politiques et performances macroéconomiques de la zone euro," Post-Print hal-03459617, HAL.
    14. Marina Marinkov & Philippe Burger, 2006. "The South African Phillips Curve: How Applicable is the Gordon Model?," Working Papers 038, Economic Research Southern Africa.

    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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