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Flattening of the Phillips curve and the role of the oil price: An unobserved component model for the USA and Australia

  • Paradiso, Antonio
  • Rao, B. Bhaskara

We used the unobserved component model of Harvey (1989, 2011) to estimate the Phillips curve for the USA and Australia, augmenting it with the oil price. Our results show that while the coefficient of demand pressure and the intercept decreased, the coefficient of the oil price increased. Therefore, the oil price is likely to play a significant role in future inflation rates.

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File URL: http://www.sciencedirect.com/science/article/pii/S016517651200290X
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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 117 (2012)
Issue (Month): 1 ()
Pages: 259-262

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Handle: RePEc:eee:ecolet:v:117:y:2012:i:1:p:259-262
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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  1. Olivier Jean Blanchard & Jordi Galí, 2005. "Real wage rigidities and the New Keynesian model," Working Papers 05-14, Federal Reserve Bank of Boston.
  2. Andrew Harvey, 2011. "Modelling the Phillips curve with unobserved components," Applied Financial Economics, Taylor & Francis Journals, vol. 21(1-2), pages 7-17.
  3. John M. Roberts, 2004. "Monetary policy and inflation dynamics," Finance and Economics Discussion Series 2004-62, Board of Governors of the Federal Reserve System (U.S.).
  4. Kuttner, Ken & Robinson, Tim, 2010. "Understanding the flattening Phillips curve," The North American Journal of Economics and Finance, Elsevier, vol. 21(2), pages 110-125, August.
  5. Commandeur, Jacques J.F. & Koopman, Siem Jan, 2007. "An Introduction to State Space Time Series Analysis," OUP Catalogue, Oxford University Press, number 9780199228874, June.
  6. John C. Williams, 2006. "Inflation persistence in an era of well-anchored inflation expectations," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue oct13.
  7. Gruben, William C. & McLeod, Darryl, 2002. "Capital account liberalization and inflation," Economics Letters, Elsevier, vol. 77(2), pages 221-225, October.
  8. Russell, Bill, 2011. "Non-stationary inflation and panel estimates of United States short and long-run Phillips curves," Journal of Macroeconomics, Elsevier, vol. 33(3), pages 406-419, September.
  9. John C.B. Cooper, 2003. "Price elasticity of demand for crude oil: estimates for 23 countries," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 27(1), pages 1-8, 03.
  10. Jeffrey C. Fuhrer, 2009. "Inflation persistence," Working Papers 09-14, Federal Reserve Bank of Boston.
  11. Timothy Cogley & Giorgio E. Primiceri & Thomas J. Sargent, 2010. "Inflation-Gap Persistence in the US," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(1), pages 43-69, January.
  12. Frederic S. Mishkin, 2007. "Inflation Dynamics," International Finance, Wiley Blackwell, vol. 10(3), pages 317-334, December.
  13. Doyle, Matthew & Beaudry, Paul, 2000. "What Happened to the Phillips Curve in the 1990s in Canada," Staff General Research Papers 10286, Iowa State University, Department of Economics.
  14. Jeffrey C. Fuhrer, 1995. "The Phillips curve is alive and well," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 41-56.
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