Modeling The Philips Curve: A Time-Varying Volatility Approach
This paper examines the Phillips curve relationship when the second moment of inflation is nonlinear. Specifically, we estimate GARCH models that provide evidence consistent with Keynesian-type models that imply output "overshooting" and inflation fluctuations following aggregate demand shocks. Additionally, the evidence suggests that an increase in the conditional variability of inflation leads to higher levels of inflation.
Volume (Year): 3 (2003)
Issue (Month): 2 ()
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