An examination of U.S. Phillips curve nonlinearity and its relationship to the business cycle
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.
Volume (Year): 29 (2009)
Issue (Month): 2 ()
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- 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.
- Oscar Jorda & Alvaro Escribano, 2003.
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9726, University of California, Davis, Department of Economics.
- Alvaro Escribano & Oscar Jorda, . "Improved Testing And Specification Of Smooth Transition Regression Models," Department of Economics 97-26, California Davis - Department of Economics.
- 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 S119-36, Suppl. De.
- Janet L. Yellen & George A. Akerlof, 2006. "Stabilization Policy: A Reconsideration," Economic Inquiry, Western Economic Association International, vol. 44(1), pages 1-22, January.
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