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An examination of U.S. Phillips curve nonlinearity and its relationship to the business cycle

Author

Listed:
  • Derek Stimel

    (Menlo College)

Abstract

We test for and model nonlinearity of the reduced-form U.S. Phillips curve using the smooth transition regression (STR) framework. We find evidence of two regimes: a “high inflation regime” associated with fast rising food and energy prices and a “low inflation regime” associated with slower rising or falling food and energy prices. This suggests that the U.S. Phillips curve varies asymmetrically over the business cycle. Particularly, the U.S. Phillips curve has a tendency to shift in and flatten towards the end of expansion periods and in recessions. This result implies that the non-accelerating inflation rate of unemployment (NAIRU) varies over the short-run or business cycle.

Suggested Citation

  • Derek Stimel, 2009. "An examination of U.S. Phillips curve nonlinearity and its relationship to the business cycle," Economics Bulletin, AccessEcon, vol. 29(2), pages 736-748.
    • Handle: RePEc:ebl:ecbull:eb-08e30008
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    File URL: http://www.accessecon.com/Pubs/EB/2009/Volume29/EB-09-V29-I2-P24.pdf
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    References listed on IDEAS

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    1. Terasvirta, T & Anderson, H M, 1992. "Characterizing Nonlinearities in Business Cycles Using Smooth Transition Autoregressive Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages 119-136, Suppl. De.
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    5. Eliasson, Ann-Charlotte, 2001. "Is the Short-run Phillips Curve Nonlinear? Empirical Evidence for Australia, Sweden and the United States," Working Paper Series 124, Sveriges Riksbank (Central Bank of Sweden).
    6. Robert J. Gordon, 1998. "Foundations of the Goldilocks Economy: Supply Shocks and the Time-Varying NAIRU," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 297-346.
    7. Alvaro Escribano & Oscar Jorda, "undated". "Improved Testing And Specification Of Smooth Transition Regression Models," Department of Economics 97-26, California Davis - Department of Economics.
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    Cited by:

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    7. Burhan Biçer & Almila Burgac Cil, 2023. "Symmetric and Asymmetric Dynamics of Output Gap and Inflation Relation for Turkish Economy," Prague Economic Papers, Prague University of Economics and Business, vol. 2023(5), pages 520-549.

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    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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